Be careful of ‘honeymoon’ intro rates

Home lenders entice borrowers to their home loans with attractive low introductory rates. These rates may be up to 2 percentage points below the standard rates for home loans and look therefore look very attractive. But Infochoice analysis shows otherwise. “Honeymoon rates” only last for six months to a year before automatically reverting to the standard rate offered by that lender. The ‘comparison rate' that lenders must publish for each loan is a much better tool with which to compare the true interest and fees costs of different loans. Infochoice's Australian Mortgage Report in 2004 found that the lower the introductory rate, the more costly the loan turned out to be over time.

By all means take advantage of these discounted rates but don't let them dictate your choice of loan. Compare loans on the basis of their true cost over time and on the basis of flexibility and features important to you.

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