An introductory home loan has a temporary discounted interest rate, often called a honeymoon rate. When the discount ends, the loan moves to the revert rate specified in its terms. Compare both periods and the fees over the time you expect to keep the loan.
A lower starting repayment can help with cash flow after settlement. A higher revert rate can use up that saving, so budget for the later payment before accepting the offer.
How an Introductory Home Loan Rate Works
An introductory rate reduces the interest charged for a stated period. The contract identifies when the discount ends and which rate or product follows. A variable honeymoon rate can change during the discount period if the lender changes its underlying variable rate.
A fixed-rate period holds the agreed interest rate for its stated term. That price certainty does not make every fixed loan an introductory offer. A cashback promotion pays a separate benefit and can accompany either rate type.
Bank Australia’s Clean Energy Home Loan New Build illustrates a time-limited discount. Its variable option has a reduced rate for 60 months from settlement. It then moves to the lender’s lowest advertised variable Offset Home Loan rate at that time. The future revert percentage is therefore unknown at application.
This green-property offer has a longer discount than a short honeymoon offer, but the same pricing question applies. How much will the loan cost once the temporary reduction ends?
Compare the Saving With the Revert Cost
Compare interest and fees across the introductory period and your intended holding period. Keep the amount borrowed and remaining term equal, then account for the balance still owing at each comparison point.
The hypothetical example below compares two $500,000 loans over 30 years with monthly principal-and-interest repayments. Loan A charges 5.50% p.a. for two years, then 6.50% p.a. Loan B charges 6.00% p.a. throughout.
Assume Loan A has a $500 upfront fee and a $200 annual fee. Loan B has neither fee. Fees are paid separately from the loan. Both loans have no offset balance or extra repayments, and all assumed rates stay unchanged within each period. These figures are illustrative and are separate from the Bank Australia offer.
| Measure | Loan A: introductory offer | Loan B: ordinary pricing |
|---|---|---|
| Monthly repayment, first two years | $2,839 | $2,998 |
| Monthly repayment from year three | $3,145 | $2,998 |
| Interest and fees over two years | $55,184 | $59,287 |
| Balance after two years | $486,149 | $487,341 |
| Interest and fees over five years | $148,723 | $145,137 |
| Balance after five years | $465,852 | $465,272 |
Loan A saves about $4,103 in interest and fees over two years. By five years, it costs about $3,586 more. Its monthly repayment rises by about $307 when the discount ends. Loan B also leaves about $580 less debt after five years.
The calculation uses monthly interest and recalculates Loan A’s payment over the remaining 28 years at reversion. Figures are rounded to whole dollars. Actual lenders commonly calculate interest daily, so their repayment schedules can differ.
Interest and fees measure borrowing cost. Repayments also include principal, which reduces the debt. If you plan to sell or refinance after two years, add discharge and switching costs to that shorter comparison.
Use the comparison rate as an initial cost indicator, then model your own amount and holding period. A standard comparison rate can use a different balance and term. It cannot capture every conditional cost or the value of a feature you use.
Deduct a cashback only after allowing for any clause requiring its repayment on early discharge. Treat a fee waiver the same way if its terms require repayment. In the Bank Australia example, the $199 annual fee is paid in advance and is non-refundable. The credit-card annual-fee waiver ends when the loan is repaid in full.
Check Eligibility and Features During the Offer
An advertised introductory offer applies only when the borrower and property meet its eligibility rules. Loan-to-value ratio (LVR) is the loan amount divided by the lender’s property valuation. A change in either figure can move an application outside an advertised rate tier.
Bank Australia’s example covers owner-occupiers and investors making principal-and-interest repayments, with LVR up to 90% and at least $10,000 in new borrowing. Buying, building and refinancing can qualify, subject to the property’s requirements.
Its New Build eligibility guide requires Australian tax residency and an Australian property valued up to $2.5 million. The home must be all-electric, have at least a 7.5-star Nationwide House Energy Rating Scheme rating and have been built within the preceding 18 months. Freestanding houses also need qualifying rooftop solar. Apartments have different solar requirements, so use the relevant property category.
Other offers can restrict access to new customers, refinances or owner-occupied loans. A borrower can pass the lender’s credit assessment yet miss a particular promotion. Match the application to the offer’s conditions before counting its saving.
Features can change the result even when the headline rate is lower. Compare these terms for the discounted period and after reversion:
- Whether an offset applies to the whole balance, and any account fee or rate loading.
- The amount available through redraw, including minimum withdrawals and access conditions.
- Extra-repayment limits and any charge for exceeding them.
- Break costs if a fixed-rate split is repaid or changed early.
Bank Australia’s example includes a 100% offset. A borrower who keeps substantial savings in an offset can get a different result from the no-offset example above. Moneysmart’s home-loan guide explains how to compare features alongside the lender’s Key Facts Sheet.
Plan the Review Before the Discount Ends
Record the discount’s expiry trigger at settlement and schedule a review before it occurs. An offer measured from settlement needs a different reminder from one measured from first drawdown or another contract event.
- Save the offer and contract terms showing the discount period, revert product and relevant fees. Record any benefit-repayment deadline separately.
- Set a reminder around three months before expiry. That gives you time to request existing-customer pricing and compare alternatives without assuming another lender will approve a switch.
- Recalculate repayments using the expected remaining balance and term. Test a higher-rate scenario as well as the lender’s quoted revert rate.
- Compare the cost of staying with the written cost of switching. Include discharge fees, new-loan costs and any promotional benefit you must repay.
Moneysmart recommends asking your current lender for a better deal before switching. Keep the remaining loan term in the comparison. Extending it can lower repayments while increasing total interest.
A future refinance requires approval under the lender’s criteria then. Lower income or a lower property valuation can prevent the switch. Assess refinancing suitability separately and choose an introductory loan only when you can carry its later repayment if you stay.
