Introductory home loan incentives may look enticing to home buyers but for most, the important thing is the value of the loan long term.
While an introductory low rate might give you a head start in the mortgage repayment race, you may end up encountering peaks and forks in the road when the rate reverts to a higher than normal interest rate.
While we aren’t suggesting slow and steady necessarily wins the race, we are suggesting to look at the whole picture and don’t get stuck on flashy starting rates.
Customers are now more than ever casting a critical eye over introductory rate home loans, which carry a discounted interest rate for a term, known as a ‘honeymoon period’, to lure in new customers.
The low honeymoon interest rates generally last for six months before reverting to a higher variable rate. The downside to this is the reverted rate is often higher than the market average.
So in the long-term, the enticing honeymoon rate home loans may cost borrowers tens of thousands of dollars more than a good value rate home loan from the start of the loan.
Spotting a great value home loan
To ensure you get a good value rate home loan and save money over the life of your loan, here are a few tips to consider when home loan shopping:
- Consider fixing all or part of your home loan: You can split your loan between variable and fixed
- Consider all the fees and charges
- Compare an expansive range of home loans online
- Ignore the banks marketing ploys – get down to the bottom of what’s really on offer
- If your current lender isn’t giving you a great rate don’t be afraid to make a switch
Fixing all or part of your loan can ensure that you are insulated against any sudden market fluctuations. So you are more able to ensure you have a good value rate home loan for a set period of time than with a variable rate, which moves with the market.
The only downside to fixing your rate is when there is a significant interest rate decrease, as you will not be able to reap the benefits or this while your rate is fixed.
Taking into consideration any fees and charges, such as establishment fees, discharge fees and ongoing annual fees, can also determine whether or not your home loan is good value.
There are hundreds of fee-free home loans available on RateCity, so shop online to compare home loans that save you money on fees, but also have competitive interest rates for the life of the loan, so you know you’re getting the best deal.
Start your shopping by comparing a range of home loans, including introductory rate home loans, with the RateCity home loan comparison tool. To work out how the loan rates convert to repayments use the home loan repayment calculator.