Keep Introductory Rates in Mind
Tuesday October 28, 2008
Introductory home loan rates can leave you high and dry when the introductory period is finished. While interest rate rises may not be likely for the near future, with home loan rates looking to get lower, when interest rates do rise again you will want to be careful if you are still on an introductory rate.
An introductory rate home loan can provide you with excellent value if it does not restrict the extra payments you may make, but you must always remember that the rate is discounted when determining the impact of interest rate changes on your ability to repay your home loan. You should never put yourself in a situation where the discount on the rate is the only reason you can afford your home loan, as when your introductory rate home loan comes out of the honeymoon period you could find yourself with a nasty surprise.
There can be some excellent advantages to using an introductory rate home loan while acting as if you do not have the discounted rate. For one, adding the money you would otherwise pay to the home loan if you did not have the discount could make a huge difference to the amount of interest you will pay overall in your home loan. Home loan calculators can easily demonstrate the effectiveness of repaying extra money to a home loan in the early days of a loan, so do calculations to find out how much you can save.
Secondly, you set yourself up for a more stable transition to normal home loan rates when you choose to pay for the difference between the standard rate and the discounted home loan rate. Many people are not prepared when they transfer from an introductory rate to the standard rate, which can leave them struggling and may even lead to default.
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