Adelaide Bank: The Temptation of Discounted Rate

Remember the Sirens of Greek mythology? They sang so beautifully that passing sailors couldn't resist getting closer to them. The sailors would follow the sound of the music by steering their boats towards the Sirens or by jumping in the water to get closer and let's just say it didn't end well.

When looking for a home loan, don't be caught up in what sounds likes a good deal without looking for the hidden dangers, especially when it comes to discounted introductory rates.

An introductory rate home loan, such as the Adelaide Bank Discounted Rate loan aims to lure new homebuyers into the mortgage market with an attractive discount on the interest rate (either fixed or variable) for the first few months or even year of the loan term.

Also known as a honeymoon rate, after the introductory period the interest rate on your loan will revert to Adelaide Bank's standard variable rate, or you can choose to fix your rate for one to five years.

An easier start with lower monthly repayments is obviously helpful, but be sure to consider the consequences for the remainder of the term of your loan. With a Discounted Rate loan, the interest rate you pay after the introductory period may be higher than some of the lower standard loans on the market, which means you could end up paying more overall. This works to Adelaide Bank's advantage, but you should beware of jumping into too deep for a discounted rate, as it means you could get stuck paying more than you would like to in the long term.

A Discounted Rate loan such as the options offered by Adelaide Bank could suit new home buyers who may need to pay for landscaping, furniture and bits and pieces for their new home, and so would like to avoid making large monthly repayment in the first year. However, remember that introductory loans such as these can lack the features and flexibility of other loan types.

For example, a redraw facility is available, but a minimum amount of $500 applies for each withdrawal. The application fee is $350, with an $8 ongoing service fee. The minimum loan term for both the fixed and variable discounted rate loans is five years, and an exit fee of $275 applies whenever the loan is fully repaid.

The moral of the story? Do your homework and find out the features that you need from your home loan before getting caught up by the Siren song of introductory rates.

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