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Honeymoon Rate Home Loans

Honeymoon rate home loans allow you to ease your way into a mortgage with a discounted rate in the early period of your home loan.

Honeymoon or introductory rate home loans explained

A honeymoon or introductory rate home loan gives you a lower interest rate in the early period of your loan. A honeymoon rate can save you large amounts of money and see as much as a 1% decrease on standard interest rates.

The length of the honeymoon period you are given will vary between lenders but will usually be anywhere between six months and two years.

What can I save with a honeymoon interest rate home loan?

The amount of money you will be able to save during your honeymoon rate period is larger than you’d think. While a 1% discount may seem insignificant, with the amount of money being loaned, there will likely be a large difference over the life of your honeymoon period.

Take for example this table of how much can be saved with repayments that would be made on a honeymoon rate home loan (3% p.a.) in comparison to a standard rate home loan (4% p.a.) over a period of two years (on a loan term of 30 years) with $550,000 borrowed.

Month Honeymoon rate home loan – total payments made Standard rate home loan – total payments made Savings made with honeymoon rate home loan
1 month
$2,319
$2,626
$307
6 months
$13,914
$15,756
$1,842
12 months
$27,828
$31,512
$3,684
18 months
$41,742
$47,268
$5,526
24 months
$55,656
$63,024
$7,368

Who are honeymoon rate home loans meant for?

Honeymoon rate home loans were created for younger first home buyers so that they were able to ease themselves into the process of making repayments on a home loan. They were also directed to first home buyers because these borrowers are generally at the beginning of their chosen careers and are currently on a lower income, but have a large earning potential over the longer term of their loan.

However, honeymoon rate home loans are by no means reserved for first home buyers, younger buyers and lower income earners. You will be able to receive a honeymoon rate home loan now days at any stage of your professional (and post professional) life. This type of home loan may also be attractive to property investors who are looking to pay less at the beginning of their loan while they are still looking for rental tenants or making improvements to the home.

What happens after the honeymoon period ends?

Unfortunately, at the end of your honeymoon period, you will be shifted back into interest rate reality. Your lender will revert your interest rate back up to their standard home loan product’s rate. This can be a real shock for many borrowers who become used to their honeymoon interest rate and are not prepared for the substantial rise they see when the period is over. Some lenders may even charge you with a rate that is higher than the standard rate after the conclusion of your honeymoon period.

Could I refinance my home loan after the honeymoon period ends?

This is a tactic if used correctly, could save you money over the longer term of your loan.

The basis of this strategy is to refinance your loan once your honeymoon period has concluded to a different loan with another honeymoon rate. The only downside of this tactic is that you may be charged a home loan exit fee plus the additional new fees for establishing a new loan might outweigh the benefits.

How do I find the best honeymoon rate home loan deal?

First and foremost, you should be looking for the lowest interest rate possible when looking at different honeymoon home loan deals.

Next have a look at what length honeymoon period each lender has on offer. The longer the better, but keep in mind that a longer honeymoon period may translate to a higher rate after the end of the period.

Be wary of the rate that your loan will revert to after your honeymoon period. The difference between the two rates may not seem like that much now, but when you will need to start paying it, the difference on your repayments could shock you.

You should also look out for what addons you can get with your loan, including 100% offset accounts and redraw facilities. As well as the features you can get on your loan, find out what your home loan’s exit fee is. It’s very unlikely that this will be advertised, so ask your lender.

Get ahead

A way to get ahead on your home loan repayments during your honeymoon rate period is paying at the standard rate you will be charged after your period. This is beneficial as it gets you used to paying this back on your home loan and also means you are getting more off your principal with each payment than you usually would. This means you could potentially have your home loan repaid quicker, saving you large amounts in interest payments at the backend of your loan.

Another way to get ahead during your honeymoon period is through the use of an offset account. An offset account is a bank account that’s balance works against your home loan. If you act as if you are paying at a standard rate with each home loan repayment and place all of the excess into an offset account, it will work against your home loan meaning you can repay it faster. Not every lender and home loan product will offer an offset account, so try to find one that does, or ask your lender if it can be included in your home loan.

Pros and cons of a honeymoon rate home loan

Are you trying to work out if a honeymoon home loan is right for you? Have a look at the pros and cons.

PROS

Save large amounts of money in the early stages of your home loan.

Ease your way into the home loan repayment process.

Have the ability to make extra repayments because of the lower rate and gradually reduce your principal.

Use the spare cash for other reasons such as home improvements, an emergency fund or other investments.

CONS

The rise in interest rate and repayments required could be a shock to you.

Refinancing your home loan and moving to another lender (maybe on another honeymoon rate) could mean you are charged with a home loan exit fee.

Extra repayments on your home loan could be capped during the honeymoon period thus restricting how far you can get ahead on your home loan.

Want to know more about honeymoon rates?

Find out everything you need to know about this special type of home loan.

Will I save money overall with a honeymoon rate?

You will likely save money overall at the end of your loan period if you have a honeymoon rate for the start of it.

Using the example mentioned earlier, you would save $13,272 on interest over the entire loan term.

Does every lender offer honeymoon rates?

Much more often than not lenders will offer honeymoon rate home loans to borrowers. They could also be advertised as “introductory rates”.

Can I extend my honeymoon rate period?

Generally, since the honeymoon rate period was agreed upon in your home loan’s contract, you will not be able to extend your period on your current loan deal.

However, as mentioned previously you could look to refinance your home loan to another loan product with its own honeymoon rate. This could be with the same lender or a new one.

How do I know the best loan offer when I see it?

In regards to a honeymoon rate home loan, find the lowest rates possible for both the introductory rate and standard rate. See what the difference is here and if you will be comfortable dealing with the change in rate.

Also look for the length of the honeymoon rate period and any additional features you could get.

Is there a limit on how many times I can refinance my home loan?

No, there is no limit on the number of times you can refinance your home loan. This means you could potentially bounce from honeymoon rate to honeymoon rate as soon as your current loan’s introductory period finishes.

Be aware that most home loans will have exit fees to deter you from doing this, but if done right, the savings could outweigh the costs.

What property is best for a honeymoon rate home loan?

A great aspect of this loan is that they suit all properties. It is instead more focussed towards the borrower’s situation.