Honeymoon rate home loan: what happens when it ends
A honeymoon or introductory rate is a discounted rate for the first six to twelve months of a home loan, after which the loan reverts to the lender's standard variable rate. On $500,000, a 0.5 point discount saves about $2,500 in the first year, but a revert rate 0.5 points above market costs about $52,000 over 30 years. It only suits you if the revert rate is competitive on its own, or if you will refinance the day the discount ends.
- A discounted rate for a limited period, usually 6 to 12 months, then a revert to the standard rate (Moneysmart’s definition)
- On $500,000, a 0.5 point discount for a year saves about $2,500; a revert rate 0.5 points above market costs about $52,000 over 30 years
- The comparison rate blends both periods; a comparison rate well above the headline rate means a high revert rate
- No break cost when it ends, because it is a variable loan: refinance the day the discount stops if the revert rate is above market
- Compare it against a standard loan at the revert rate from month 13, and against a cashback offer on the same basis
WARNING: This comparison rate is true only for the example given and may not include all fees and charges. Different terms, fees, or other loan amounts might result in a different comparison rate. Comparison rates are calculated on a secured loan of $150,000 over 25 years for home loans, a loan of $30,000 over 5 years for car and personal loans, and $50,000 over 5 years for equipment finance, unless the lender states another basis.
What is a honeymoon rate?
Moneysmart's glossary defines it as a lower interest rate offered for a limited period at the start of a loan, after which the rate reverts to the lender's standard rate. Lenders call it an introductory rate, an intro rate or a honeymoon rate, and Mortgage Choice lists introductory loans as a loan type. The discount is usually applied to a variable loan for six or twelve months. There is no break cost when it ends, but there is also no protection during it: the lender can move the underlying variable rate, and the discount is off whatever that rate becomes.
Worked example: $500,000 over 30 years
| Loan | Year 1 rate | Years 2 to 30 | Year 1 interest | Total interest over 30 years |
|---|---|---|---|---|
| Standard variable | 6.0% | 6.0% | About $29,800 | About $579,000 |
| Honeymoon loan | 5.5% | 6.5% revert | About $27,300 | About $631,000 |
The honeymoon loan saves about $2,500 in the first year and costs about $52,000 more over the life of the loan, because the revert rate is half a point above the standard loan for 29 years. The only way it wins is if you refinance the day the discount ends, which costs the switching fees in the refinancing costs guide and depends on being eligible to refinance at that point. Rates here are illustrative; the arithmetic holds at any level.
How to read a honeymoon offer
Three numbers. The introductory rate is the headline and the least important. The revert rate is in the fine print and is the one to compare with the market; ask for it in writing if the advertisement does not state it. The comparison rate is the regulated figure that blends both over a standard $150,000, 25-year loan with fees, and it is where a honeymoon loan shows its cost: a comparison rate well above the headline rate means a high revert rate or high fees. The comparison rate guide explains what it includes and leaves out, and the repayment calculator lets you run the loan at the revert rate from month 13.
Honeymoon rate, cashback or a lower ongoing rate?
All three are ways lenders compete for new borrowers, and all three should be reduced to the same question: what will this loan cost over the years you expect to hold it? A cashback is worth its face value once. A honeymoon discount is worth its dollar value in the first year. A lower ongoing rate is worth its difference every year. On a loan you will hold for five years or more, the ongoing rate almost always wins, which is why the best use of a honeymoon or cashback offer is on a loan whose ongoing rate is competitive anyway.
What to do when the period ends
Diarise the revert date when you sign. Two months before it, compare the revert rate with the market; the interest rates guide shows where it sits. If the revert rate is competitive, do nothing. If it is not, refinance to a lender whose ongoing rate is, or ask your lender to match: retention teams price to keep borrowers, and a broker's quote from another lender is the leverage. There is no break cost on a variable loan, so the only costs are the switching fees, which a cashback from the new lender can cover. Get matched with a licensed broker who works this kind of lending and they contact you.
Reading a rate
Comparison rates, cashbacks and what the loan becomes.
Honeymoon rate FAQs
What is a honeymoon interest rate?
Are honeymoon rates worth it?
What happens when the honeymoon period ends?
How does a honeymoon rate differ from a fixed rate?
Is a honeymoon rate the same as a cashback offer?
How do I compare a honeymoon loan with a standard loan?
See past the honeymoon
Tell us the offer you are looking at, and we refer you to one licensed broker partner who compares it at the revert rate against the market over the years you will hold the loan. Free for borrowers, no obligation.