Honeymoon Loan
These are also known as ‘introductory’ or ‘special offer’ loans, and are a key marketing tool in the highly competitive Australian mortgage market. Honeymoon loans offer borrowers a very low interest rate, usually set for the first six to 12 months of the loan, although some lenders have extended terms to several years.
After the introductory period, the loan then reverts to a standard variable rate. This loan is very attractive to first home buyers who want to take advantage of the safety net a lower interest rate offers while they get used to paying a mortgage. It can also give them a financial head start, especially if they are able to make additional payments, provided the loan allows this.
The important thing to remember about this loan is that it is a honeymoon – at the end of the honeymoon period it will roll over to what is likely to be a higher interest rate.
Lenders will usually impose additional exit fees for borrowers who want to pay their loan out during the honeymoon period, so you need to be aware of these. Some lenders will fix the rate during the honeymoon period. Other lenders will maintain a honeymoon rate that is an agreed amount less than the standard variable rate, for example it may be maintained at a rate that is one per cent below the current standard variable rate.
Honeymoon loans are great for giving you a short term bonus, but the fact they revert to a standard rate after the honeymoon’s over means you need to evaluate the loan’s long term features as well.
