Have you ever heard or stumbled upon honeymoon interest rates? What do they mean? Are they useful? Read on to learn more about honeymoon rates.
Honeymoon rates are actually discounted variable interest rate for a certain mortgage product. The individual who decides for the interest rate is the bank, the loan provider, or other financial institutions who offer mortgage loans. This comes with an agreed initial period prior to taking out the loan. Once the agreed initial period of the honeymoon rate has already passed, the home loan will then revert to a higher variable rate.
Let’s take for instance, there is a lesser interest rate given out by the loan provider for the first year of the home loan, after another year it will revert to a higher interest rate. Other home loan products even have honeymoon rates for at most three years of the mortgage.
Why do loan providers give out honeymoon rates?
Honeymoon rates are very appealing to new borrowers since it has low interest rates. The low interest rate will stand out as a very excellent deal for new borrowers who are seeking for a home loan.
The only benefit of a honeymoon rate is that it permits new borrowers to get used to having a home loan. If the interest rates are low, it would be very easy in the borrowers end to repay the home loan. Hence, this kind of loan is helpful in most circumstances.
What should you be aware of?
A honeymoon rate can be suitable for most borrowers but it is always important to be cautious of the interest rates, especially if the home loan honeymoon rate period will end and interest rates will revert. Honeymoon rates are not very necessary, but this can depend on the situation of a borrower, selecting a basic variable rate can sometimes be more sensible than opting for honeymoon rates. Deciding on which interest rates to take needs a heedful decision since borrowers will need to consider a few requirements to work on and select which home loan product can help them save money at the longest time.
A reliable mortgage broker can determine the right home loan that can satisfy the needs of a borrower and can consider their individual situation. Mortgage brokers can also determine if a honeymoon rate can work out on the borrowers end or otherwise.