honeymoon loansHoneymoon 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 2.99% certainly attracts your interest, and even though you may not proceed when you read the fine print, at least you’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 one  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 but beware the package discount are often lower that they would be without the honeymoon.

Remember with a honeymoon rate interest 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 yielding account.

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