Introductory loans

Lenders often offer introductory loans to new customers. Also known as honeymoon loans, these introductory specials offer a lower interest rate for a certain period and then the rate rises to a standard variable rate mortgage. When considering an introductory rate offer, be sure you know the answers to five key questions:

  • What is the introductory rate? The rate on introductory loans should be less than the standard rate for a similar mortgage. In some cases it may be a fixed rate, and in others it may vary and be a discount off of the lender’s standard variable rate.
  • How long will the introductory rate be in effect? In most cases, introductory rates last from six months to a year, although occasionally you can find introductory rates stretched out longer.
  • To what rate will the loan rise once the introductory rate ends? Usually, this rate is higher than you would pay if you had secured the best variable rate mortgage initially.
  • May you pay extra towards principle during the introductory period? Ideally, you would want to pay down your mortgage as much as possible during the low rate period. In many cases, you will not be allowed to make more than pre-defined monthly payments during the introductory period.
  • Is there a penalty for paying off your mortgage early? If so, how much is it? In most cases, there will be an early payoff penalty on introductory loans.

The last two questions are of less concern if you have no intention of early payoff on your loan; however, remember that situations change. You may find that you have to move because of a change in job or family circumstances. Thus, it is still good practice to take into consideration early payment rules when contemplating introductory loans.

In most cases, you will end up paying more over the life of your loan when you opt for an introductory offer. Yet honeymoon loans may be beneficial to those who need the extra fund availability immediately after a property purchase, whether to pay off other purchase costs and fees or to have more flexibility in furnishing or updating the property.

Contact us to to discuss introductory loans

We can help you to understand when and if an introductory loan is right for you, and to compare different introductory offers, Give us a call, or raise a question via the blog comments if you’d prefer.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

clear formSubmit