INTRODUCTORY RATE LOANS AND HONEYMOON SURPRISES


INTRODUCTORY RATE LOANS AND HONEYMOON SURPRISES

Published on April 30, 2015

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When you look to get started or grow your property investment portfolio, research is an integral component of the process.

For example understanding the finance options currently available to you and making comparisons before making a decision is something that will pay dividends in the long run.

Many people dive in before finding out what options are available and what may be best suited to their particular circumstances, especially if the interest rate is low.

The problem is once you’ve signed, you’re committed to the term of the loan, i.e. unless you choose to get out of the loan, which may prove to be a very costly exercise.

This five part series is designed to help you navigate the many loan types available. 

This week I’m putting a spotlight on introductory rate loans and pointing out the less attractive honeymoon surprises.

The luxuries of introductory loans

Introductory rate loans are commonly referred to as ‘honeymoon’ loans because of the ‘celebratory’ period during which you pay a discounted interest rate.

The discounted rate is often the cheapest on offer but only for an initial period of time, which is usually 12 months. 

While this is the typical timeframe, some lenders may offer the discount for as little as six months or for up to three or four years.

Honeymoon loans are generally popular for first-home buyers, however this doesn’t mean that these are the only people who can access these products. 

Paying lower installments during the introductory period can help you get ahead financially during the first months, but it’s important to consider how the loan changes after this initial period.

After the honeymoon is over

After this period expires, the loan generally reverts to the lender's standard variable rate.

Although it may be tempting to take out a honeymoon loan because of its reduced interest rate, it is important to watch out for restrictions or exclusions on other aspects of the loan. 

Many lenders will limit the availability of features such as redraw facilities and repayments options as a means of offsetting the lower interest rate. 

In some cases this can mean less flexibility over the life of the loan.

Introductory rate loans may also attract higher establishment and monthly account keeping fees, which over the life of the loan may erode the perceived savings.

Before locking yourself into this type of loan, it is important to find out what the revert rate is to make sure you don’t end up over committing yourself. 

The cost of discharging the loan or switching during the introductory period can also be quite high, and is something to be wary of.

How to choose

Introductory rate loans can give you a real head start on a mortgage, but remember once they finish you have to be able to meet the new higher repayments.

While we can’t tell you if an introductory rate loan is best for your particular circumstances, we'll continue to dedicate our attention to highlighting some of the different loans available to help guide you when it comes time to sign on the dotted line.

It's time for a check-up on your existing loans

In the meantime we’re able to compare what’s currently on offer from many lenders and find the best loan for your specific needs - just give us a call for an obligation free appraisal.

MRD offer a full spectrum of services relating to property acquisitioninvestment options, superannuation (includingSMSFs) and insurance, and can help you develop clarity around your short, medium and long term financial goals.

Speaking to MRD Finance is a good starting point to find out which loan is most appropriate for your individual circumstances, and if we can help we'll also guide you through the paperwork and application requirements.

Reply to this email, call us on 1300 883 854 or contact us here and we'll provide you with more information, including a complimentary consultation to establish what loan structure best suits your needs (and if we can negotiate on your behalf a better deal than what you currently have).

Partnering with you for your investment success,

Nick Lockhart.