The pros and cons of honeymoon home loan rates

Honeymoon interest rates on a home loan can be appealing to borrowers as lenders compete for their business. However, often times little is actually known about what honeymoon rates are, how they benefit and if they’re the right fit for a borrower.

What is a honeymoon rate?

A honeymoon - or introductory - rate is a reduced interest rate (when compared to a lender’s alternative home loan products). This lower rate is designed to attract borrowers and is offered for a set period of time, after which the interest rate increases in line with the lenders other mortgage products. Honeymoon rates have both pros and cons and we’ve taken a look at both sides.

The pros

Honeymoon rates often appeal to first home buyers because it gives them an opportunity to ease into mortgage repayments and learn how to best manage their home loan.

Many borrowers use the honeymoon period to pay off more of their home loan so that they’re prepared and ahead on their repayments when their interest rate increases. It can also mean that mortgage holders can save on interest and ultimately own their home sooner.

The cons

Although a borrower may be saving on interest for the first few years of their mortgage and even be in a position to pay off more, when the honeymoon rate period ends a homeowner might be locked into an interest rate that is not as competitive in the broader market.

And whilst mortgage holders can change lenders, some banks charge early termination fees, meaning if they do decided to switch to a new lender with a more competitive interest rate it will cost a customer a sum of money.

Before a borrower commits to any type of home loan product, it’s important for them to do the research and be confident in knowing they have the right mortgage for their own personal circumstances.

The benefit of using a mortgage broker is that they can do the legwork on behalf of the home buyer and identify a variety of home loan products that could suit their needs.