An introductory variable rate home loan is a type of home loan that offers a low-interest rate for an initial time period. Introductory rate home loans are often referred to as honeymoon loans and are generally offered by mortgage brokers to first-time homeowners or to entice new customers. After the honeymoon period has ended, the interest rate will then revert back to an interest rate that is generally higher than standard home loan interest rates.
Introductory variable rate home loans are a great option for homeowners looking to take a break from paying mortgage repayments at the beginning of their loan agreement and can allow a homeowner to rebuild their finances after saving and financing a new home purchase. Mortgage brokers and their clients can easily calculate their introductory variable rate home loan by using a free, online Introductory Rate Loan Calculator.
Before a potential borrower makes a decision to apply for and agrees to an introductory variable rate home loan, they should be made aware of the potential benefits and disadvantages by their mortgage broker.
As we mentioned previously, an introductory variable rate home loan can allow a homeowner to take a break from paying high mortgage repayments due to the decreased interest rate, which can be a great benefit.
However, there are various disadvantages a homeowner can face with this type of home loan, including the following examples:
- Refinancing an introductory variable rate home loan can result in a homeowner being subject to facing high fees and break costs
- A homeowner who is unprepared to finance the increased interest-rate when the honeymoon period has ended may face severe financial troubles
- When the loans honeymoon period has ended, the interest rate will increase to be higher than traditional home loan interest rates