Buying a house is filled with expenses, some examples being legal fees, stamp duty, application fees, as well as the initial required deposit. On top of these initial costs, there can be additional expenses, especially in that initial year, as you begin to personalise your home and make it your very own.
A introductory rate (or honeymoon rate) home loan is a lower interest rate for the first 1 to 3 years of the loan hence reducing your home loan repayment amount during this period. Once the introductory period has ended, the loan reverts to a higher interest rate for the remainder of the loan. Caution needs to be exercised as this new interest rate is not always the lenders standard interest rates, so it’s extremely important to understand what your repayments will be at the end of the introductory home loan period and to ensure you budget for these higher loan repayments.
The reduced repayments during the introductory period frees up some of your funds allowing you to pay for those additional costs when moving into your new home. A better option if your situation and the introductory product allows, would be placing the extra funds into the home loan repayments during the introductory period to help reduce the overall loan period. Some lenders do place restrictions on the number of extra repayments so it’s important to understand these restrictions upfront if this was your goal.
Features like offset account and redraw facilities are not available on some introductory rate home loans. These two particular features help in reducing the overall interest paid over the life of the loan so you need to consider how this impacts you if not provided.
This eventually leads to asking about the possibility of switching out from the introductory rate home loan product to another product at the end of the introductory period. While this is normally possible, there are switching fees and these will need to be taken into account.
We can help guide you through all these options and considerations into the home loan product most appropriate to your financial situation and future goals.