What is an introductory home loan?

An introductory home loan is a loan which the lenders offer at a reduced interest rate terming it as introductory which lasts for a year or two. This rate of interest is significantly lower than any of the other lenders rate of interest in the whole market. This is what attracts the borrowers.

For an introductory period set by the lender, the repayment values would be drastically low which adds as a benefit in investing in a new mortgage. You can grab this opportunity and pay large repayments in the introductory period which will be beneficial in the long run when the interest rate normalizes after the introductory period is over. An introductory loan calculator will help you through this.

What to consider before taking out an introductory home loan?

The introductory loan sure seems to be very attractive and money saving, but again there are a few things which you need to be careful about. As the introductory period will end after a set period, it should not so happen that you end up in a problem later on.

1. The Revert Rate

The interest rate of the loan while the introductory period is going on is known as the ongoing rate. When the introductory period comes to an end the ongoing rate changes and reverts to a higher rate of interest. If it is for home loan then the introductory rate of home loan increases. This reverted rate would be higher than many lenders in the market or lower as well. But having a note of this prior to borrowing a loan with an introductory period is a must. You must be prepared to deposit a large amount of repayment. Although if it is less, you need not worry much, but still being prepared for the revert rate is always beneficial.

2. The Comparison Rate

Generally speaking an introductory loan always comes with hidden costs which are not levied on the borrower in the introductory period. But when this period ends all the other hidden costs, additional charges, revert rate, processing fees, etc are levied. A sum of all this is known as comparison rate, which is a percentage value of the sum. So if this value is unknown you will end up paying a heavy amount to the lender. So knowing and understanding the comparison rate is a must.

3. Features

You need to make sure that there are additional features incorporated into the introductory loan as there are in a general loan. Features like offset facilities or redraw or extra payment provision etc. These facilities allow you to clear off your loan as soon as possible. But if the introductory loans do not come with these features, then you would be paying the repayments all through the tenure with the same interest rate.

You can find all these terms in the home loan calculator of Australia.