Honeymoon Rate (also called introductory rate) is a discounted interest rate offered for the first 6-24 months of a loan, after which it reverts to a higher standard variable rate. While attractive upfront, honeymoon rates can be misleading—always check the comparison rate and reversion rate before committing.
How Honeymoon Rates Work
Lenders offer a below-market introductory rate to attract borrowers, then revert to a higher rate after the honeymoon period ends.
Typical structure:
- Honeymoon period: 6-24 months (most commonly 12 months)
- Honeymoon rate: 2.0-4.0% below standard variable rate
- Reversion rate: Standard variable rate (often 0.3-1.0% above market)
- No option to keep honeymoon rate
Example:
- Loan: $600,000 over 30 years
- Year 1: Honeymoon rate 4.99% p.a.
- Monthly repayment: $3,214
- Annual interest: $29,400
- Year 2+: Reverts to 6.79% p.a.
- Monthly repayment: $3,920
- Increase: $706/month ($8,472/year)
Honeymoon Rate vs Standard Rate
Cost Comparison
Honeymoon rate loan:
- Year 1: 4.99% ($3,214/month on $600K)
- Years 2-30: 6.79% ($3,920/month average)
- Total interest over 30 years: $1,182,000
Standard competitive rate:
- All 30 years: 5.89% ($3,553/month on $600K)
- Total interest over 30 years: $1,079,000
- Honeymoon loan costs $103,000 more over life of loan
When Honeymoon Beats Standard
If you refinance after honeymoon period:
Honeymoon approach:
- Year 1: 4.99% = $29,400 interest
- Year 2: Refinance to competitive 5.89% = $34,800 interest
- 2-year interest: $64,200
Standard rate approach:
- Years 1-2: 5.89% = $35,340/year
- 2-year interest: $70,680
- Honeymoon saves $6,480 (if you refinance)
Common Honeymoon Rate Structures
1. Deep Discount, Short Period
Example:
- Honeymoon: 3.99% for 6 months
- Reversion: 6.99% thereafter
- Comparison rate: 6.85%
Cost analysis ($500,000 loan):
- Months 1-6: $2,387/month
- Months 7+: $3,324/month
- Payment shock: $937/month
Who it suits:
- Borrowers planning to refinance within 6-12 months
- House flippers (short-term ownership)
2. Moderate Discount, Medium Period
Example:
- Honeymoon: 5.29% for 12 months
- Reversion: 6.49% thereafter
- Comparison rate: 6.39%
Cost analysis ($500,000 loan):
- Year 1: $2,758/month
- Year 2+: $3,152/month
- Payment shock: $394/month
Who it suits:
- First home buyers (low repayments initially while settling in)
- Borrowers with expected income increase
3. Small Discount, Long Period
Example:
- Honeymoon: 5.79% for 24 months
- Reversion: 6.29% thereafter
- Comparison rate: 6.19%
Cost analysis ($500,000 loan):
- Years 1-2: $2,936/month
- Year 3+: $3,092/month
- Payment shock: $156/month (manageable)
Who it suits:
- Borrowers wanting stability with minor savings
- Those not planning to refinance frequently
Comparison Rate Explained
Comparison rate shows the true cost of a loan over 25 years, including fees and rate changes.
Example:
Loan A:
- Honeymoon rate: 4.49% (12 months)
- Reversion rate: 6.89%
- Application fee: $600
- Comparison rate: 6.75%
Loan B:
- Standard rate: 5.89% (all years)
- Application fee: $0
- Comparison rate: 5.91%
Loan B is cheaper despite higher initial rate.
How to Use Comparison Rates
Always compare the comparison rate, not the honeymoon rate.
Example:
- Loan A: Honeymoon 4.99%, comparison 6.65%
- Loan B: Honeymoon 5.49%, comparison 6.15%
- Loan B is 0.5% cheaper over the life of the loan
Calculation ($600,000 over 25 years):
- Loan A @ 6.65%: Total interest $678,000
- Loan B @ 6.15%: Total interest $618,000
- Loan B saves $60,000 despite higher honeymoon rate
Hidden Costs and Traps
1. High Reversion Rates
Trap: Honeymoon rate is attractive, reversion rate is well above market.
Example:
- Advertised: "4.79% home loan!" (honeymoon)
- Fine print: Reverts to 7.19% after 12 months
- Market rate: 5.99%
- Reversion is 1.2% above market
Cost ($500,000 loan, years 2-30):
- At reversion rate: $3,400/month
- At market rate: $2,987/month
- Extra cost: $413/month = $143,376 over 29 years
2. Exit Fees and Break Costs
Trap: Want to refinance after honeymoon ends, but early exit fee applies.
Example:
- Honeymoon ends after 12 months
- Want to refinance to better rate
- Early exit fee: $1,200 (if within first 3 years)
- Refinancing costs: $1,800
- Total cost to exit: $3,000
Break-even analysis:
- New rate: 5.89% vs current 6.79%
- Savings: $0.9% on $580,000 = $5,220/year
- Break-even: 7 months
- Still worth refinancing
3. Low Features, High Rates
Trap: Honeymoon rate is low, but loan has no features.
Example:
- Loan A (honeymoon): 4.99% → 6.79%, no offset, no redraw
- Loan B (standard): 5.89%, offset account, free redraw
Cost comparison ($600,000 loan, $50,000 in offset):
- Loan A: $40,740/year interest (no offset benefit)
- Loan B: $32,395/year interest (offset saves $2,945/year)
- Loan B cheaper despite higher rate
4. Opaque Reversion Rates
Trap: Reversion rate not clearly disclosed.
Example:
- Advertised: "4.99% introductory rate!"
- Fine print: "Reverts to our standard variable rate"
- Standard variable rate: Not mentioned (currently 6.99%)
- You don't know what you're signing up for
Solution: Always ask: "What is the exact reversion rate after the honeymoon period?"
When Honeymoon Rates Make Sense
1. Planning to Refinance
Strategy: Take honeymoon rate, refinance before reversion.
Example:
- Honeymoon: 4.89% for 12 months
- Plan to refinance at month 11
- Year 1 interest: $28,800 (on $600K)
- Refinance to market rate: 5.89%
- Saved $6,000 in first year
Requires:
- Financial discipline to actually refinance
- Willingness to pay refinancing costs ($1,000-$2,000)
- Property value hasn't declined (can still refinance)
2. Short-Term Ownership
Strategy: Sell property before honeymoon ends.
Example:
- Buy, renovate, sell strategy
- Timeline: 10 months
- Honeymoon rate: 4.99% for 12 months
- Sell before reversion
- Saved vs standard rate: $5,400
3. Expected Income Increase
Strategy: Low initial repayments while income is lower.
Example:
- Graduate starting new job: $75,000/year
- Expected salary in 2 years: $105,000 (promotions, experience)
- Honeymoon: $3,200/month (affordable now)
- Reversion: $3,900/month (affordable with higher income)
4. First Year Budget Management
Strategy: Offset high first-year costs (furniture, moving, renovations).
Example:
- First year costs: $25,000 (furniture, landscaping, etc.)
- Honeymoon saves: $500/month = $6,000/year
- Easier to manage cash flow in year 1
When to Avoid Honeymoon Rates
1. Planning to Keep Loan Long-Term
If you'll keep the loan 5+ years without refinancing:
Example:
- Honeymoon: 4.99% → 6.79%
- Standard: 5.89% (all years)
- Over 5 years ($600,000 loan):
- Honeymoon: $177,000 interest
- Standard: $173,000 interest
- Honeymoon costs $4,000 more
2. Tight Budget (Can't Afford Payment Shock)
Example:
- Income: $85,000
- Honeymoon repayment: $2,800/month (affordable)
- Reversion repayment: $3,500/month (stretching budget)
- Risk: Can't afford reversion, forced sale or default
Better: Choose sustainable repayment from day 1.
3. Complexity Aversion
Some borrowers prefer simplicity:
- Standard rate: Know your repayment for life of loan
- Honeymoon rate: Must track end date, plan refinance, manage payment shock
Example:
- Busy professional, high income
- Values simplicity over $3,000-$5,000 savings
- Chooses standard rate @ 5.89% for peace of mind
4. Uncertain Property Market
If property values might decline:
- Honeymoon ends after 12 months
- Want to refinance
- Property value dropped 8%
- LVR increased (can't refinance without LMI)
- Stuck on high reversion rate
Example:
- Purchase: $750,000, loan $600,000 (80% LVR)
- 12 months later: Property worth $690,000
- LVR: 87% ($600K ÷ $690K)
- Can't refinance without paying LMI
- Stuck at 6.79% reversion rate
- Cost: $5,400/year vs market rate
Calculating True Cost
3-Year Cost Comparison
Scenario: $600,000 loan, planning to refinance after honeymoon
Loan A (Honeymoon):
- Year 1: 4.99% = $29,400 interest
- Year 2-3: 6.79% (can't refinance, stuck) = $80,940 interest
- Total: $110,340
Loan B (Standard):
- Years 1-3: 5.89% = $104,760 interest
- Total: $104,760
Loan B is cheaper by $5,580 if you can't refinance on time.
30-Year Cost Comparison
Scenario: Keep loan for 30 years, never refinance
Loan A (Honeymoon):
- Year 1: 4.99%
- Years 2-30: 6.79%
- Total interest: $1,182,000
Loan B (Standard):
- All years: 5.89%
- Total interest: $1,079,000
- Loan B saves $103,000
Refinancing Out of Honeymoon Rates
Optimal Refinance Timing
Refinance 1-2 months before honeymoon ends:
Example timeline:
- Honeymoon ends: Month 12
- Start refinance process: Month 10
- Approval: Month 11
- Settlement: Month 12 (just before reversion)
- No months at high reversion rate
Refinancing Process
Step 1: 2-3 months before reversion
- Research lenders (speak to NIK Finance broker)
- Compare rates across 100+ lenders
- Choose best option
Step 2: Apply (6-8 weeks before reversion)
- Submit application
- Valuation ordered
Step 3: Settlement (before reversion)
- Settle new loan
- Old loan discharged
- Avoid reversion rate entirely
Refinancing Costs
Typical costs:
- Discharge fee: $350-$800
- New application fee: $0-$800
- Valuation: $300-$600
- Legal: $300-$600
- Total: $950-$2,800
Is it worth it?
- Reversion rate: 6.79%
- New rate: 5.89%
- Savings: 0.9% on $580,000 = $5,220/year
- Refinancing costs: $1,800
- Break-even: 4 months
- 30-year savings: $150,000+
Marketing Tactics to Watch
1. "Lowest Rate in Australia"
Claim: 4.19% home loan!
Reality:
- Honeymoon rate: 4.19% for 6 months
- Reversion: 7.29%
- Comparison rate: 7.05%
- One of the highest comparison rates
2. "Pay Less in Year 1"
Claim: Save $6,000 in your first year!
Reality:
- Year 1 savings: $6,000
- Years 2-5 extra cost: $16,000
- Net cost: -$10,000 over 5 years
3. Buried Reversion Rate
Ad: Huge font "4.79%" Fine print: Tiny font "reverts to 6.89% after 12 months"
Many borrowers miss the reversion rate.
Real-World Examples
Example 1: Successful Honeymoon Strategy
Borrower:
- Loan: $550,000
- Honeymoon: 4.89% for 12 months
- Reversion: 6.69%
Strategy:
- Month 10: Starts refinance process
- Month 12: Settles new loan @ 5.79%
- Year 1 interest: $26,400
- Year 2 interest: $31,200 (new rate)
- Saved $5,100 vs standard 5.89% both years
Example 2: Failed Honeymoon Strategy
Borrower:
- Loan: $600,000
- Honeymoon: 4.99% for 12 months
- Reversion: 6.99%
What went wrong:
- Month 12: Forgets honeymoon ending
- Month 18: Realizes repayment jumped $700/month
- Month 19: Applies to refinance
- Property value dropped 5%
- LVR increased to 84%
- Can't refinance without LMI ($15,000)
- Stuck at 6.99% for 3 years = $30,000 extra cost
Example 3: Honeymoon vs Standard (Long-Term)
Borrower A (Honeymoon):
- Loan: $700,000
- Honeymoon: 4.79% → 6.89%
- Keeps loan 10 years (doesn't refinance)
- Total interest: $456,000
Borrower B (Standard):
- Loan: $700,000
- Standard: 5.89% all years
- Keeps loan 10 years
- Total interest: $408,000
- Borrower B saves $48,000
Final Thoughts
Honeymoon rates can save money—but only if you refinance before the rate reverts. For most borrowers, a competitive standard rate is simpler and cheaper long-term.
When honeymoon rates work:
- You're disciplined about refinancing
- Property market is stable (won't block refinancing)
- You have time to manage refinance process
- Short-term ownership (sell before reversion)
When to choose standard rate:
- Planning to keep loan 5+ years
- Want payment certainty
- Can't afford payment shock
- Prefer simplicity over savings
Key principles:
- Always check comparison rate (true cost over 25 years)
- Set calendar reminder for 2 months before honeymoon ends
- Factor in refinancing costs ($1,000-$2,000)
- Compare reversion rate to current market rates
- Read fine print (exit fees, lock-in periods)
Typical cost comparison ($600,000 loan):
Honeymoon (refinance after 1 year):
- Year 1: 4.99% = $29,400
- Refinancing costs: $1,800
- Total cost: $31,200
Standard rate (hold 1 year):
- Year 1: 5.89% = $35,340
- Total cost: $35,340
- Honeymoon saves $4,140
Honeymoon (stuck at reversion for 5 years):
- Year 1: 4.99% = $29,400
- Years 2-5: 6.79% = $159,600
- Total cost: $189,000
Standard rate (hold 5 years):
- Years 1-5: 5.89% = $173,400
- Total cost: $173,400
- Standard saves $15,600
Bottom line: Honeymoon rates are a gamble—you must refinance on time to win. If you can commit to refinancing, honeymoon rates save money. If you'll forget or can't refinance, choose a competitive standard rate from day 1.
Speak to a NIK Finance broker to compare both honeymoon and standard rates across 100+ lenders—they'll help you understand the true cost and whether a honeymoon rate suits your situation.