The Introductory (Honeymoon) Home Loan

Introductory loans, also known as ‘honeymoon loans,’ were initially designed to help first-home buyers enter the property market. However, they are now widely available to a range of borrowers. These loans offer a reduced interest rate for a set period—usually 6 to 12 months—before reverting to a standard variable rate. While they can provide short-term savings, borrowers must plan for the transition to higher repayments.

Pros of the Introductory Home Loan

Lower Initial Repayments

• The discounted rate during the honeymoon period means lower monthly repayments, making it easier to manage cash flow in the early stages of the loan. Example: A borrower taking out a $500,000 loan at a 4.5% standard rate but receiving a 3.0% introductory rate for 12 months might save around $7,500 in interest in the first year (approximate figure only).

Easier Entry into the Property Market

• First-home buyers and budget-conscious borrowers can benefit from reduced repayments in the first year, helping them settle into homeownership.

Opportunity to Pay Off More Principal Early

• If the lender allows extra repayments during the honeymoon period, borrowers can take advantage of the lower rate to reduce the principal faster. Example: If you can make an additional $500 monthly repayment during the introductory period, you’ll reduce your overall interest costs significantly.

Potential for Later Refinancing

• Some borrowers use the introductory period strategically before refinancing to a better deal once the rate reverts.

Cons of the Introductory Home Loan

Interest Rate Reverts to a Higher Variable Rate

• Once the honeymoon period ends, the loan switches to the lender’s standard variable rate, which can be significantly higher. Example: A borrower who starts with a 3.0% rate for 12 months may revert to a 5.5% standard rate, increasing monthly repayments by hundreds of dollars.

Potentially Higher Long-Term Costs

• Despite the short-term savings, these loans can sometimes be more expensive over the long run due to higher revert rates.

Limited Features and Flexibility

• Many introductory loans restrict redraw facilities, offset accounts, or additional repayments, reducing financial flexibility. Example: A borrower needing to access extra funds through a redraw facility may find that the loan does not allow it.

Break Fees or Restrictions on Refinancing

• Some honeymoon loans come with conditions that penalize borrowers who try to refinance or switch loans before a certain period. Example: A borrower who wants to refinance within two years might face exit fees or be unable to switch without penalty.

We’ll walk you though the process and ensure you are structured for maximum wealth creation and lowest repayments.