Introductory home loans offer highly competitive interest rates - But whats the catch?

With the intense competition in Australia's home loan market today, home mortgage lenders are working harder and harder to capture our attention in order to win our business. One of the ways in which mortgage lenders attract our attention is by offering introductory loans with low interest rates for a period of usually between three and 12 months. Here we take a look at the introductory home loan detailing the benefits & pit falls of such an offer.

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Introductory home loans and the honeymoon rate

The introductory home loan offer (also known as a honeymoon rate) provides borrowers with a highly competitive interest rate, generally for a period of between three and 12 months. These introductory home loans are designed to both attract new home buyers as well as to lure existing home borrowers away from their existing mortgage provider. At the end of the honeymoon home loan period, the interest rate on the mortgage will generally revert to the standard variable home loan interest rate of the mortgage provider.

When considering an introductory home loan

If you are considering to take out a new home loan, then it will definitely pay to find a mortgage provider who is offering a highly competitive introductory home loan rate. Shop around and compare the different mortgage providers for the best deal. But, you must be careful here. You should not choose a home loan based purely on the low interest rate provided in the honeymoon introductory period. You should also carefully consider the standard variable interest rate that the loan will revert to once the honeymoon period is over. Also, calculate your repayments on this higher amount, as this is what you will be paying in three to 12 months time when the honeymoon rate expires.

Likewise, if you already have a home loan with another mortgage provider, carefully consider whether you will be better off in the longer term before deciding to switch to another lender in order to take advantage of their introductory home loan offer. Will the standard variable interest rate remain lower than the rate you are paying now once the honeymoon period is over? And what fees or penalties will you incur by paying out your existing home loan early?

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Introductory home loans reviewed A low rate but whats the catch

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