Honeymoon Rate Home Loans, which offer a special introductory interest rate, are a popular choice for many first home buyers as they can offer a lower interest rate in the early days of the home loan.
There are a few things you need to consider when looking at Honeymoon Rate Home Loans, so we’ve outlined them for you.
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So, what is a Honeymoon Rate Home Loan?
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A Honeymoon Rate Home Loan is a loan that offers the borrower a special ‘honeymoon’ or introductory lower variable interest rate generally for the first 1 – 3 years of the loan.
Starting a home loan with a special rate can mean lower repayments in the early life of the loan. This means that you could either benefit from less financial outlay on repayments, or you could choose to pay over and above the scheduled repayment and thereby build some financial equity in your home loan account.
If you’re a first time home buyer, having a lower repayment schedule could also free up your finances so that you can spend more money on other ‘set up’ costs involved with your first home, such as furnishings, gardening, maintenance etc.
One thing to be aware of is that the interest rate on a Honeymoon Rate Home Loan usually reverts to a higher rate when the ‘honeymoon is over’.
You should also remember that Honeymoon Rate Home Loans usually offer a variable interest rate, so make sure that you budget for possible interest rate rises both during and after the honeymoon period.
So, make sure you make the most of your honeymoon period and use it to your financial advantage.
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What do I need to know?
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As a Honeymoon Rate Home Loan only offers a low interest rate for a certain period of the home loan, normally 1 to 3 years, you should ensure that you are aware of the rate that the loan will revert to when the honeymoon is over.
It is important to make sure that, while you benefit from any lower interest rate in the early days of your loan, you don’t then get hit in the hip pocket by a high interest rate for the rest of the life of your loan.
The RAMS Rate Relief Home Loan offers a 0.9% p.a. discount off the RAMS Standard Variable Rate for the first two years of the loan. When the honeymoon period finishes, the ongoing variable rate for the loan is 0.2% p.a below the RAMS Standard Variable Rate for the life of the loan.
It’s also important to find out what fees you will pay on your home loan. Most lenders charge an Early Termination Fee if we repay your loan early within the first few years of the loan term.
The RAMS Rate Relief Home Loan doesn’t have any account keeping fees and also offers up to 10 years of interest only repayments1, with the option to make extra repayments of $2000 or more. An Early Termination Fee applies if you repay your loan within the first 4 years of your loan term.
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How can I make the loan work to my advantage?
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It’s important to look carefully into any home loan that you are considering so that you can make sure that it offers you the features and benefits that you need. There’s little point taking out a home loan that offers you a number of different features that you would never use, so make sure the loan suits your financial requirements.
For instance, you may want to make extra repayments as you’re able to do so and then access the extra funds via a redraw facility if and when you need to. So, it’s important to make sure you won’t be charged to make extra repayments and that you have a redraw facility on your loan. If you do want to take advantage of redraw services, find out if there are any conditions, such as minimum or maximum redraw amount, time frames and charges.
If you’re planning on starting a family in the future, a home loan that offers you the option of putting your repayments on hold for a certain period might also be of benefit. Make sure you explore any fees, charges and conditions associated with such a facility.
If you’re building your first home with the assistance of the First Home Owner Grant, make sure your loan offers a construction option, which can help you manage your finances in line with the building process and building payment schedule.
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How do I take up a Honeymoon Rate Home Loan?
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If you’re looking for your first home loan and think that a Honeymoon Rate Home Loan is right for you, talk with a RAMS Consultant today to find out more about the range of loans, options and benefits we can offer.
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1 10 year interest only (IO) option available for investment purposes only.
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