Fixed-rate falls cause confusion

Continuing large falls in home loan fixed rates is creating a lot of interest among borrowers – and much confusion.

This especially applies to those considering 1-year fixed rates where the rates being offered to new customers vary markedly to those offered to existing customers.

Currently there is up to one full percentage point difference between the introductory or ‘honeymoon' rates (as low as 5.95%) lenders will offer to entice new borrowers and the normal 1-year fixed rate (as low as 6.95%) on offer to existing borrowers wanting to switch to a fixed rate.

Introductory/honeymoon loans offer reduced rates for the initial loan period – usually the first 6 to 12 months after which they revert to the higher standard rates. These honeymoon rates can be fixed or variable and up to two percentage points below the standard variable rate.

When considering an introductory/honeymoon loan it is important to look beyond its rate and consider the rate and features of the loan that it reverts to after the introductory period. After all, on the typical 25-year loan borrowing arrangement you spend one year on the lower rate and up to 24 years on the higher rate with a different set of fees, features and conditions.

Make sure you are happy with the whole package, not just the headline interest rate.

See BankChoice's Home Loans Summary Table for more details.