Honeymoon rates costing borrowers

Research shows more than a dozen lenders are using honeymoon rates to attract new home loan customers, with deals which could see borrowers up to $33,573 out of pocket within five years, and $140,816 over 30 years.

A honeymoon rate, sometimes called an introductory rate, is a variable home loan that offers a discounted rate at the beginning, usually for a period of six to 12 months. When the introductory period expires, the loan reverts to a higher ongoing rate.

The Commonwealth Bank (CBA) was offering a 12 month discounted variable rate home loan, but has recently announced it will discontinue the honeymoon rate from 29 September.

It’s a move that brings Australia’s biggest home loan lender in line with the other three major banks, none of which offer ‘honeymoon rates’ with terms of 12 months or less.

The data from comparison site RateCity.com.au shows one of the lowest honeymoon rates is 3.65% but reverts to 5.17% after just 12 months. This is an increase of 1.52 basis points, the equivalent of more than six RBA rate hikes overnight. Some revert rates are as high as 5.70%

Sally Tindall, spokesperson for RateCity.com.au said introductory rates were typically used by banks to attract people’s attention to a rock-bottom advertised rate.

She said, “Don’t get hoodwinked by a honeymoon rate. You’re almost always going to be better off with a low ongoing variable rate with no hidden twists.

“They might give you a bit of breathing room in the first year, but more often than not they are short-sighted quick fixes.

“The day after the honeymoon is over, reality sinks in and for many people their loan becomes a very costly financial headache.

“One way to be on the lookout for honeymoon rates is to check the comparison rate. If it’s significantly higher than the advertised rate, there’s likely to be costly catch.

“RateCity’s personalised ratings system is also a great tool to check whether a loan is suitable for you. It calculates the cost of your home loan over five years, exposing most introductory deals as high-cost products they are.”

From Australian Broker

Disclaimer: Please read


These articles provide you with factual information only, and are not intended to imply any recommendation about any financial product(s) or constitute tax advice. If you require financial or tax advice you should consult a licensed financial or tax adviser. The information in these articles is believed to be reliable at the time of distribution, but EFS does not warrant its completeness or accuracy. Neither EFS nor its related bodies, nor their directors, employees or agents accept any responsibility for loss or liability which may arise from accessing or reliance on any of the information contained in these articles. For information about whether a loan may be suitable for you, call EFS on 02 8041 6746.