NAB Muscling in with Introductory Rate Home Loan

Ever joined a gym? Sometimes they'll motivate you to join with a special deal on membership fees. You feel great at first, but before you know it you're ready for a change. Unfortunately, you've already signed up long term and stuck with ongoing membership payments. This is how committing to an introductory rate home loan can feel.

An introductory rate home loan aims to entice new homebuyers into the mortgage market with an alluring discount on the interest rate for the first six months to a year of the loan term. Also known as a honeymoon rate, the interest rate on your loan will revert to a variable rate after the introductory period.

National Australia Bank offer a NAB Introductory Home Loan that gets you off to a great start with a discount on a choice of fixed or variable interest rate in the first year. A great start is obviously helpful, but consider the consequences for the remainder of the term of your loan.

The problem with this type of loan is that 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. While this works to NAB's advantage, beware of falling into an interest rate trap that means that you could get stuck paying more than you would like to.

This type of loan could be ideal for homeowners who may need to purchase furniture, fittings and other new items for the home and so would like to avoid making large monthly repayment in the first year, but loans such as the NAB Introductory Home Loan can lack the features and flexibility of other loan types.

For example, the ability to make additional repayments is allowed, but restricted to a maximum of $20,000 during fixed rate periods. Any payments above this amount may cost you in fees and charges, making it difficult to significantly reduce the term of your loan.

Paying this type of loan off in full within three years of settlement will attract an early exit fee, which adds the overall cost of your loan and may erode the benefits of the introductory rate. Redraws are permitted with the NAB Introductory Home Loan, but a minimum withdrawal of $2,000 applies.

Remember that your home loan is a long term financial commitment, so look beyond the introductory period to find out how this loan will suit your financial situation in the long term. With any home loan type, it is important to look not only at the interest rate offered, but the range of features available and how these may affect your finances.