A honeymoon home loan has an introductory interest rate that is lower than the provider standard interest rate. These promotional rates are enticing because they’re so low and they offer a bit of breathing room in the first year or two of your home loan, so you can afford to do things like buy furniture for your new home.
However, be warned: These introductory rates do not last long, usually between 6 months and 2 years, and they typically revert to a much higher variable interest rate when the honeymoon period finishes. This higher rate is called the “revert rate” in this article.
Pros and cons of honeymoon home loans
Because revert rates are so much higher, basing your home loan decision on a honeymoon/introductory rate can be a big mistake. Choosing a honeymoon home loan over a standard variable home loan can cost less in the short-term but a lot more over the life of the loan. We show an example of this below under “Honeymoon home loans vs. standard variable home loans”.
So why would you choose a honeymoon loan if they’re not a good investment? Well, some lenders let you escape the revert rate by switching to one of their other home loan products a certain time after the honeymoon period has finished. There may be a small fee attached for this switch, so please do consider your own financial position when tossing up the pros and cons.
How do I know if a honeymoon home loan is a good idea?
You can “try out” a honeymoon home loan using our CANSTAR Honeymoon Home Loan Calculator. With just a few easy clicks, you can imagine different interest rates and honeymoon periods.
You can then compare this data against our Repayments Calculator, which will show you what your repayments and total interest paid would look like if you chose a standard variable home loan instead.
Example: Our calculations
The calculations we’ve made are based on inputting the following data into our calculator, except where we have specified otherwise.
- Loan Amount: $350,000
- Repayment Frequency: Monthly
- Loan Term: 25 years
- Honeymoon Period: 2 years
- Honeymoon Rate: 85% (minimum standard variable interest rate on our database at time of writing)
- Honeymoon repayment: $1,819/month
- Variable Rate after honeymoon: 31% (maximum standard variable interest rate on our database at time of writing)
- Variable repayment after honeymoon: $2,287/month
According to CANSTAR’s comprehensive research database, the majority of Australians (60%) are looking for a loan amount of between $350,000 and $749,000 – so we’ve based our home loan calculations for this article on a loan of $350,000. You can enter the specific loan amount you are looking for in our home loan calculators and our comparison of home loans on the market.
How much you can afford to repay per month is dependent on your personal financial situation, which will differ from the figures we have used in this calculation. You should carefully consider your own income and expenses when using our calculator to try out different monthly repayments.
CANSTAR makes no guarantees that your financial institution of choice will offer you a honeymoon at a certain rate, and you should speak with a financial adviser before making any decisions.
A longer honeymoon period can clearly save you more in interest over the long haul. You might be hard pressed to find a home loan with a honeymoon as long as 5 years, though! Our research team reports most honeymoon rates last from 6 months to 24 months (2 years).
Don’t forget the other costs
There’s more to the cost of a home loan than the interest rate, honeymoon or otherwise. You should also look at the comparison rate, ongoing fee, and up-front fee listed when you’re comparing home loans using our comparison tables.
Home loan calculators to help you work out your financial position
Use CANSTAR’s home loan calculators when you’re doing your sums about how much you can afford to borrow in a home loan:
- Home Loan Borrowing Power Calculator
- Home Loan Repayments Calculator
- Home Loan Extra Repayments Calculator
- Home Loan Lump Sum Repayment Calculator
- Home Loan Honeymoon Rate Repayment Calculator
- Home Loan Stamp Duty Calculator
- Home Loan Split Calculator (variable/fixed interest split loan interest rate)
- Home Loan Comparison Calculator