Published on 26 February 2016

Know Your Home Loans 1: Honeymoon Loans

In this four-part series, we’re going to take a look at the different types of home loans that are available to you. The more you understand about your loan options, the easier it will be to understand and pursue the loan possibility that suits your needs best.

Let’s begin by taking a look at honeymoon loans, which is a type of loan that certainly qualifies as tempting. However, there are several elements to this particular loan that must be understood.

What Are Honeymoon Loans?

A honeymoon loan can also be known as an introductory rate. Lenders love these types of loans for the simple fact that it gives them something to tempt customers with.

With a honeymoon loan, you’re looking at something that is going to be extremely appealing. At least, this will be true for a certain period of time. For that period of time, which could also be known as the honeymoon period, the lender is going to give you rates on the loan that are extremely low. These rates will not endure for the entire lifespan of the loan. At some predetermined point, a different, higher rate will kick in.

As you can imagine, there are a number of advantages and disadvantages to this loan type. To be certain, you’re going to love the fact that you can take advantage of a rate that is lower than your standard variable rates. Another nice advantage is the fact that your honeymoon terms can last upwards of a full year. Obviously, if you agree to the terms of a honeymoon loan, you’re going to want to make sure you understand all aspects of that loan, including the honeymoon period itself.

With the money you’ll theoretically save from the honeymoon period, it might be that much easier to get the home you want.

However, it is certainly worth keeping the potential downsides in mind, as well. For example, when your rate moves from honeymoon to variable, you may find yourself with a rate that is significantly higher than that of the normal variable rate offered through the lender.

In other words, if you are considering a honeymoon loan, then it’s important to look ahead to the future. Take a long-term view of things, and decide if the money you save in the beginning is going to outweigh the extra money you may have to spend later on. Many people trap themselves by failing to consider what they’ll be responsible for later on.

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