Caution urged with honeymoon rates for first home buyers
Lenders are flooding the home loans market with enticing honeymoon rate deals, which revert to much higher rates once the introductory period expires.
New data from RateCity.com.au shows there are more than two dozen lenders, and 71 variable home loan products, offering an introductory deal with some as low as 3.29 per cent for a six-month period before reverting to 4.79 per cent.
On a $500,000 30-year home loan this could result in monthly mortgage repayments being an extra $227, and over the life of the loan it could cost an extra $79,219 compared with a product offering a continuous rate of 4 per cent.
Peter Arnold, data insights director at RateCity.com.au, urged borrowers against being lured into these expensive products.
“These deals are basically a marketing ploy to get customers sucked into a longer-term deal,” he said.
“It’s also a trap for first homebuyers who are looking to get into the market desperately and aren’t thinking long term.
The majority of intro offers also charge high discharge fees to close the loan.
“There are 48 lenders currently offering ongoing variable rates under 4 per cent, and as low as 3.59 per cent,” he said.
How a $500,00 intro deal stacks up over 30 years
| Variable - low ongoing rate | Variable - introductory rate | difference |
rate (first 6 months) | 4.00% | 3.29% | -0.71% |
Monthly repayment (first 6 months) | $2,387 | $2,187 | -$200 |
rate (second 6 months +) | 4.00% | 4.79% | 0.79% |
Monthly repayment (second 6 months +) | $2,387 | $2,614 | $227 |
Total cost over 30 years | $859,348 | $938,567 | $79,219 |
How a $300,00 intro deal stacks up over 30 years
| Variable - low ongoing rate | Variable - introductory rate | difference |
rate (first 6 months) | 4.00% | 3.29% | -0.71% |
Monthly repayment (first 6 months) | $1,432 | $1,312 | -$120 |
rate (second 6 months +) | 4.00% | 4.79% | 0.79% |
Monthly repayment (second 6 months +) | $1,432 | $1,568 | $136 |
Total cost over 30 years | $515,609 | $563,140 | $47,531 |
