Honeymoon rates leave a $33,000 sting in the tail



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New research from RateCity.com.au shows more than a dozen lenders are using honeymoon rates to attract new home loan customers, with deals that 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 6 to 12 months. When the introductory period expires, the loan reverts to a higher ongoing rate. 

The Commonwealth Bank has announced it will discontinue its honeymoon rate – their 12 Month Discounted Variable Rate home loan – from September 29.

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 RateCity database shows one of the lowest honeymoon rates is 3.65 per cent but reverts to 5.17 per cent after just 12 months – an increase of 1.52 percentage points, the equivalent of more than six RBA rate hikes overnight. Some revert rates are as high as 5.70 per cent.

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.

“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,” she said.

“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.”

Company Product Intro rate Revert rate Extra paid after 5 yrs Extra paid after 30 yrs
Community First Credit Union Honeymoon home loan 3.65% 5.17% $23,998   $103,051 
Arab Bank Australia HeadStart Home Loan 4.15% 5.49% $29,348   $125,214 
RACQ Bank Mortgage Breaker 3.72% 4.99% $22,111   $92,105 
Hume Bank Introductory Rate 3.99% 5.10% $24,258   $99,987 
Bank of Queensland First Start Home Loan 4.70% 5.70% $33,573   $140,816 

“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.

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