If you've ever wondered about honey moon rates – what they mean and why they exist – this is for you so read on …
A honeymoon rate is essentially a discount on a variable interest rate for a home loan product. It is decided by the bank or lender and is for an agreed initial period when the home loan is taken out. After the initial agreed upon honeymoon rate period has passed, the home loan will typically revert to a (usually higher) variable rate.
For example, a lower interest rate may be given for the first 12 months of the home loan after which time it reverts to a higher interest rate. Some home loan products can have a honeymoon rate for up to 3 years of the home loan!
Why do lenders offer honeymoon rates?
A honeymoon rate can be very attractive to new borrowers as it has a lower interest rate. The lower interest rate stands out as a very good deal for new borrowers choosing a home loan.
A key benefit of the honeymoon rate is it allows new borrowers to get used to having a mortgage. The lower interest rate makes it easier for them to meet the home loan repayments. Therefore, this type of loan can be very popular in some circumstances.
What you need to be wary of?
Even though a honeymoon rate home loan may be suitable for some, it is important to be aware of the interest rate that the mortgage will revert to at the end of the honeymoon period. Depending on the home buyer's circumstances, it might make more sense to opt for a home loan with a basic variable interest rate rather than a honeymoon rate. The choice should take into consideration your longer term requirements to work out which mortgage product will save you money in the long run.
A good mortgage broker will be able to identify a suitable mortgage to your needs and your personal circumstances and work out whether a honeymoon rate home loan product will benefit you in the long run.
If you have any questions regarding honeymoon rate home loans, please leave your comments below or contact me via my website.