What is an intro rate?
An introductory rate is a special discount on the interest rate of your home loan, usually for the first one year. After the low rate period the rate will revert to a higher interest rate or a different loan type.
During that first year your repayments are significantly lower, allowing you to get a head start on your loan. Some lenders now offer intro rates ranging from six months up to to three years.
Why have a lower rate in the first year?
Our customers reasons for choosing an introductory rate vary from wanting to take it easy in the first year of buying their home to wanting to retain their extra money for other expenses such as buying furniture, extending their home or paying off other debts.
The first year of buying a home is typically much harder than the other years as you go from paying rent to paying a mortgage that is much more expensive. An introductory rate can be used to ease the burden.
Watch out for year two!
What is the catch? Many lenders give you a cheaper rate in the first year as a carrot to get you to go with their bank. Of course you need to consider the ongoing interest rate, not just the rate during the intro period, otherwise you could get caught out.
Some lenders will revert your rate to the Bank Standard Variable Rate (BSV Rate) and then refuse to give you a discount. This is the major problem with introductory rates, don’t get caught out, ask your lender about discounts after the introductory rate has expired!
Call us on 1300 889 743 or enquire online and one of our mortgage brokers will help you to choose a lender that won’t leave you high and dry.
Fixed intro rates
A range of banks offer introductory rates that are fixed for one year, allowing you to be certain of your repayments during that critical period.
The fixed rate may be lower of higher than their introductory variable rate depending on what the bank believes the reserve bank will do with interest rates.
A guaranteed rate is similar to an introductory rate in that it may be a guaranteed discount below the bank standard variable rate during that first year.
At the end of the first year the guarantee ends and the bank can charge you’re a higher rate, usually the Bank Standard Variable Rate.
Discounts from year two onwards
When comparing lenders, try to look at their discounts at the end of the introductory period. A number of bank and non-bank lenders now offer professional package discounts after the end of the first year.
Normally a small switch fee is payable that will allow you to switch loan products to one that is more suitable for the remainder of the loan term.
Features of introductory rate home loans
Typically intro rate home loans are much lower on features than a line of credit or professional package. Fixed introductory home loans are even more restrictive and may not allow extra repayments or redraw.
Check to see if your lender offers a 100% offset account, rate lock, extra repayments and the ability to pay weekly or fortnightly.
Is it suitable for me?
This type of home loan is a specialist product only suitable for around one quarter of our customers.
Talk to us and we will find out just how suitable it is for you. You need to consider if you need the discount during that first year as it may cost you more over the longer term.
How do I apply for an intro rate loan?
Call us on 1300 889 743 or enquire online and one of our mortgage brokers will contact you to discuss your options.