Introductory Rate Home Loans Home Loans

Introductory Rate Home Loans

When it comes to choosing the right type of loan to purchase a home, there are different types of mortgages that are available. One of the more popular types is the introductory rate loan which many Australians have used to buy property for decades. The concept of the loan itself is fairly simple, but is it the type of loan that will work best for your needs?

What are Introductory Rate Home Loans?

Essentially, these are loans that provide a lower initial interest rate period which is usually at a level considerably less than standard rates for a pre-determined period of time. After this time has passed, a new, higher interest rate is put into effect for the rest of the loan. The discounted interest period generally lasts from six months up to four years depending on the terms of the loan itself.

There are two types of introductory rate loans which have similar terms, the discounted fixed and the fixed discounted rates. The discounted fixed rate is one that will not change under market forces while the fixed discount will vary depending on what happens to the standard rates. So, if the standard rate should drop so too with the fixed discount rate fall at the same amount.

Advantages of Introductory Rate Home Loans

The biggest benefit to this type of loan is that you can start off with lower payment that may allow you to gain financially over the first several months. You can use this time to build up your savings and then pay off the loan after the higher rates go into effect. For many families, the introductory period is one that can help them settle into the loan.

Disadvantages of Introductory Rate Home Loans

The loans themselves are quite popular and many Australians have used them to purchase real estate property. However, there are some downsides to choosing this type of loan for your needs.

The most important factor in either type of loan is that the introductory rate will disappear after the pre-selected period of time and revert to a higher rate. So, whatever advantage you enjoyed with the lower rate will be gone for the bulk of the time that you are paying the loan. Plus, the rate that will be reverted to once the introductory period ends is usually higher than the standard rate. This means that in the long run, you’ll be paying the overall same and perhaps somewhat higher rate as you would a standard loan.

In addition, there are lenders who will place a limit on the amount of excess money you can use to pay off the loan during the introductory period which further limits the advantages of having this type of mortgage. There is usually an exit fee if you decide to pay off the loan during the introductory period which acts to discourage trying to refinance the loan to another one with an introductory rate before the higher rate kicks in.

Overall, introductory rate loans are well suited for those who are choosing their first mortgage and it can help them start off with lower payments. You should look over all the advantages and disadvantages before choosing this type of loan for your needs. 

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