>Honeymoon rates are an old part of lenders' sales armoury.  They are frequently used by lenders to attract impetuous borrowers who want to get into a house at the lowest possible short term cost. 

They also create what they call 'sticker shock' in the car trade - that is they enable lenders to advertise what look like amazingly good deals until you read the fine print. 

A recent trick has been to reduce the length of honeymoon packages. Thus lenders prepared to reduce the rate by 1% over the first year, have recently taken to reducing the rate by 2% over the first six months.  Advertising an interest rate of 3.99% certainly attracts interest, and even when people do read the fine print, at least they've stopped and looked at the lender's products.  The first law of advertising has been obeyed - first get noticed! 

Of course the drawback with honeymoon rates is that they are usually succeeded by higher interest rates than one could otherwise get.  Even if this is called the 'standard variable rate' the fact is that the standard rate is there for marketing purposes - you should be trying to raise finance at around half a percent below the standard variable rate. 

Recently some lenders have taken to adding honeymoons onto their professional packages.  This really changes things.  Now the honeymoon may really save you money and then you can get on with enjoying the savings on the professional package.  Don't forget that our Peach Home Loans rebate will add to your honeymoon - sometimes by around .4% or more depending on the size of your loan.   

The most sophisticated professional packages, with the lowest ongoing interest rates don't tend to have honeymoon rates, but if you do your homework, often the honeymoon gives you enough of a head start to ensure that you're better off even in the long run.  

A few things to remember with a honeymoon rate:  

• Honeymoon rates are often fixed and come with restrictions on flexibility.  In particular it will often be the case that an offset account is available on the product, but does not save you any interest until the honeymoon is over. In this case, unless you're going to come into a fortune, don't let this put you off.  Just put any excess money you come by during the honeymoon year into a high interest yeilding account such as those advertised by ING and Australian Unity. 
• There will usually be penalties on exiting from the loan during the honeymoon period.  Since it only lasts a year and during that year it will be saving you money, that's not usually a problem. However sometimes there are penalties for exiting the loan two and even three years after the honeymoon is over.  This may still be worth your while, but don't underestimate your own need for flexibility, and the fact that it puts the lender in the driving seat if you're asking for a better deal.  We prefer honeymoons that don't come with this kind of headache.  Just ask and we'll tell you about them.
• The "Annualised Average Percentage Rate" (AAPR) is a good measure to use when working out if a honeymoon will save or cost you money in the long run.  Just shoot us an e-mail and we'll send you our special AAPR calculator.