Homebuyers warned of interest rates pain when honeymoon is over

BANKS are at it again by luring homeowners in with enticing honeymoon interest rates and then hitting them with a rocketing leap, costing some borrowers thousands of dollars more a year.

Big banks including Westpac and the Commonwealth Bank are among those slugging customers with significant jumps after honeymoon periods expire.

Financial comparison website Mozo warned customers that they should understand these promotions revert very quickly to a higher rate.

In comparing a “honeymoon borrower” to a borrower signing up on the lowest variable interest rate on a 30-year, $300,000 loan — the honeymooner would pay an extra $61,000 over the life of the loan.

Mozo research found there are 27 variable rate owner occupier principle and honeymoon interest rates available and the average jump is 75 basis points once the honeymoon period ends.

And one of the biggest jumps is by Northern Inland Credit Union, who offers customers a discounted variable rate of 3.69 per cent before it increases to a much higher ongoing variable rate of 5.43 per cent. This is a jump equivalent to seven rate hikes or 1.74 per cent.

Westpac’s flexi first option home loan two-year introductory rate is 3.59 per cent but once this ends it rises by 1 per cent.

On CBA’s first homebuyer four-year introductory rate the offer climbs from 3.79 per cent to 4.35 per cent once the period ends.

Mozo data found on a $300,000 30-year home loan this results in a customer’s monthly repayments jumping from $1362 to $1526 — or $164 per month.

The customer will pay a total of $245,600 interest over the loan term — this is compared to a the lowest variable rate of 3.49 per cent where the borrower would pay a total of $184,400 in interest.

A Westpac spokeswoman said customers are “advised of the offer details when they apply for the loan”.

Aussie Home Loan’s chief executive officer James Symond warned customers to be wary of these types of deals.

“Borrowers need to be very careful about being enticed into a honeymoon rate without first checking what the total repayments will be over the life of the loan.’’

A Mozo spokeswoman urged borrowers to check loan terms and conditions.