Honeymoon/intro Rates

Can someone confirm my understanding of how honeymoon rates work for most FIs?

Basically the borrower gets either a very low fixed rate (usually for the first 6-12 months), either that or a percentage under the SVR that is greater than would be offered under the DSVR, so they might get 1.5% off for the first year instead of .7%.

Also:

- I assume the contract would differ, penalizing the borrower more than a contract where they went with the SVR or DSVR over the first few years?

- I assume from the intro rate they would roll to the SVR, not the DSVR and would need to refinance to get to a DSVR, which could be an expensive exercise?

- I assume that a DSVR is normally for the life of the loan (whereas the intro rates are only for the first 6-12 months depending on deal)?

Thanks
 
In general, they arent woth it for most folks because the lock ins against higher ongoings is significant.

There are a couple of products that go close to being useful

From time to time there are lender specials which get around this issue

ta
rolf
 
FWIW, many moons ago, we had a loan with a honeymoon rate, which converted to the DSVR rather then the SVR when the honeymoon rate expired. HOWEVER, the DSVR on this loan was 0.5% compared with 0.7% on others!! :eek:
 
- I assume the contract would differ, penalizing the borrower more than a contract where they went with the SVR or DSVR over the first few years?

- I assume from the intro rate they would roll to the SVR, not the DSVR and would need to refinance to get to a DSVR, which could be an expensive exercise?

- I assume that a DSVR is normally for the life of the loan (whereas the intro rates are only for the first 6-12 months depending on deal)?

Thanks

Yes usually there is a higher exit fee or timeframe, but not always.

2. Some lenders actually move you to the SVR others to a discounted rate - so be aware. For instance the St G 12mth Advantage Discount variable loan goes to the disct as per loan size under the Professional Package but as well as paying the annual fee $395 you have to pay $500 to roll it into the lower DSVR. So know that not all lenders are the same and some have extra costs. PS St G moved that rate up this week.

3. Yep the honeymoon unlike in some marriages does not go on forever, however as long as you keep the terms of the discount requirements be it a Pro Pack or a basic loan, ie loan size, min or a few products etc depending on the lender, then the DSVR should not change.

Hope this helps

Jane
 
You cant make assumptioms with these types of products, they are marketed specifically for confusion. Some are fixed, some are variable, some charge an exit fee to leave the product after the intro rate, even if you dont change banks. There are a small number that are sometimes worth it depending on loan amount, but these are few and far between, and involve the risk of knowing you have to refinance after a certain period.
HSBC had a reverse honeymoon that was a little odd. Started high and then reduced over the first 5 years. I doubt it was very popular...
 
When we got our two loans, one was honeymoon and then went to a discount variable. The other is boring as. Both have stupid break fees, are crossed, and we're going to cross them even more later this year.

The discount loan is so small I actually tend to ignore it in our budget, and we've still managed to get a little ahead on it. Funny thing is we wanted to pay the honeymoon loan out within a year and suffer all those fees but it just hasn't worked out like that.
 
On deferred establishment fees :)

I have just helped a client refinance a 3.5 year old CBA loan

One of the split was 8500.

The def was 700

8.23 %...........nice money if you can get it. Would be ok if its was a stand alone facility, but not when mixed in with others


AT least the curremt bad girl of the industry being WBC has recently taken a more logical approach. 5 loans on one security = one break fee not 5

ta
rolf
 
Rolf,

Thats an interesting issue .. Do you know what ING's policy is for the break free with multiple loan accounts against the one security? Just opened a new account secured against a property that I may sell before the end of the DAF. Would be pissed if they try to hit me for a DAF for each account.

Jason
 
You cant make assumptioms with these types of products, they are marketed specifically for confusion. Some are fixed, some are variable, some charge an exit fee to leave the product after the intro rate, even if you dont change banks. There are a small number that are sometimes worth it depending on loan amount, but these are few and far between, and involve the risk of knowing you have to refinance after a certain period.
HSBC had a reverse honeymoon that was a little odd. Started high and then reduced over the first 5 years. I doubt it was very popular...
Thanks tobe, that pretty much hit the nail on the head (there are too many types to make a accurate assumption across all the different products available)...
 
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