When mortgage brokers are assisting clients with loan research and applications, they must have a clear understanding of all loan offerings. A honeymoon loan is another name for an introductory variable rate home loan, which is a type of loan that guarantees a low-interest rate for a determined time period. Mortgage brokers generally offer honeymoon loans to new customers or first-time home buyers to attract new clients.
When the introductory period of a home loan ends, generally 6 months to 2 years after the agreement, the interest rate will then revert back to an increased interest rate that is generally higher than traditional home loan. Mortgage brokers can assist their clients with introductory rate calculations by using an online Introductory Rate Loan Calculator.
Before a client applies for and agrees to an introductory rate home loan, their mortgage broker needs to inform them of the various pros and cons associated with this type of loan.
Honeymoon loans allow a homeowner to take a break from funding their new home by paying decreased mortgage repayments due to the low interest rate, allowing them to recoup some of their lost funds. However, there are a wide variety of cons that come along with honeymoon loans, including the following examples:
- When the introductory period of the honeymoon loan has ended, the interest rate will revert to an increased rate that is typically higher than traditional home loans
- If a homeowner decides to refinance their introductory rate home loan, they may be subject to facing high fees and break costs
- A homeowner who is unprepared for the interest rate increase may be subject to facing financial troubles