An introductory variable interest rate home loan can help you lower your periodic repayments as you ease into your mortgage commitments.
While an introductory competitive rate loan can help you during the initial stages of your loan, you need to make sure that you effectively plan for the anticipated rate rise when the interest rate reverts back to the standard variable rate offered by the lender.
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Bank of Queensland 2 Year Intro Rate Variable Home Loan - (Owner Occupier, P&I)
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Get a low discounted rate for the first 2 years plus a 100% offset account. You can also get this loan with a 10% deposit.
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What is an introductory mortgage?
Introductory home loans are often called honeymoon home loans because they can be popular with first home buyers who have saved hard for their deposit and other home loan costs and need a little more room in their budget for the first years of their mortgage while they rebuild their savings. Anyone can benefit from an introductory variable rate though, even if you are a second home buyer, refinancing or investing.
An introductory variable interest rate will be applied to an introductory home loan for a set period of time. This introductory period could last for anywhere from six months to three years. At the end of the introductory period, your home loan interest rate reverts to the lender's standard variable interest rate for your loan type.
Below are some of the benefits of an introductory home loan:
An ongoing introductory low interest rate. With an introductory variable interest rate you will remain several steps ahead of official interest rates in the first few months or years of your loan. This can influence your choice of loan, because you may be worried about interest rate rises, but not ready to lock into a fixed rate loan, but with an introductory variable rate, you don't have to.
An introduction to loan repayments. If you are a first home buyer, mortgage repayments can come as a big shock to your budget. Even if you are buying a second home or refinancing, you may be borrowing more money and therefore looking at higher repayments. However, an introductory variable rate will allow you to introduce a lower loan repayment into your budget, adjust to that and then find that little bit more room for your regular repayments, rather than being shocked with full repayments from the beginning.
Some of the lowest interest rates available. Introductory variable rates are becoming a very competitive loan product and as a result are some of the lowest available on any loan type.
More funds for new home costs. When you buy a new home there are more costs than just repayments, loan fees and stamp duty to worry about. There are moving costs, the cost of new furniture and of course paying for the house warming party. With a lower introductory variable rate on your home loan, you can free up cash for these new home costs.
You can choose flexible repayment options. An introductory variable rate can be applied to various types of loans, so if you shop around you can find a loan with additional repayment and redraw facilities and even an offset account to save you even more.
Considerations when taking out an introductory variable rate
As with any loan product, if you use an introductory variable rate loan outside of its intended parameters you can be penalised. Therefore, make sure you can avoid pitfalls such as:
Some limited features. Make sure your introductory home loan has all of the features you want and need in a loan, as some may limit the number or value of additional repayments which can be made during the introductory period.
High standard variable rate. When comparing introductory variable rates, be sure to compare the lender's standard rates too because you could be faced with much higher repayments than expected when your introductory rate reverts to the standard rate.
How can you find ongoing lower interest rates on your home loan?
Not all types of home loans come with the option of a lower introductory rate, especially low doc home loans and construction loans, but there are other features and home loan types which can save you in interest.
Introductory variable rate home loans can also be found with some or all of these features, so you can continue to save on interest with:
An offset account. An offset account is a transaction account which is linked to your home loan account and the balance of the offset account reduces the amount of your loan which attracts interest. For example, if you have a $250,000 home loan and you have $10,000 in your offset account, you pay interest on just $240,000. This then means your monthly repayments are lower as they are made up of less interest, so if you continue to make the same monthly repayment, the extra amount will come directly from your principal loan amount and you can repay your loan sooner, because you pay less interest.
A professional package discount. Many lenders will offer a discounted interest rate as part of a professional package if you borrow over a certain amount. The discount often increases the more you borrow and can be an ongoing interest rate discount for the life of the loan, up to 0.7%.
A basic home loan. A basic home loan is one without any additional features or products attached. As such, this simple loan product charges the lowest interest rate of any loan product, often up to 2% lower than a standard variable interest rate loan.
Marc Terrano is the lead publisher of Points Finder and a co-host of the Pocket Money podcast. He was previously a writer and publisher for home loans at Finder. Marc has a Bachelor of Communications (Journalism) from the University of Technology Sydney. He’s passionate about creating honest and simple reviews and comparisons to help Australians get the best value for their money.
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