With a number of clients now using lower Fixed Rates as part of their overall strategy to lower their average interest rate costs, people applying for a home loan who want to fix need to consider – to rate lock or not.

A ‘rate-lock fee’ is a once off fee a customer pays to lock in the fixed rate available at the time of application (or any time before settlement), protecting them from any fixed rate rises during the process.

The ‘rate lock’ typically last for around 90 days, but this can differ between lenders.

What does “Rate Lock” cost?

Rate lock fees can be expensive depending on the $ size of your loan, however, it differs between lenders with some Banks/Lenders charging a flat fee and others charging a percentage of the loan.

In some situations, the borrower would have been better off if they paid the typical rate-lock fee of up to $750. However, that is only if the lender increases rates during the time up until settlement.

In the current environment where fixed rates are on the rise, rate lock fees are worth considering.

Of course, there are no sure things as it is a gamble between how long the loan will take to settle, versus how likely a Lender is to increase fixed rates in that time.

Customers ultimately need to decide and be prepared to lose if it doesn’t go their way.

If a bank has just increased rates, you might have time to fix before the next rise, but there are no guarantees thus you may consider using rate lock.

Pros and cons of a fixed rate lock:

  • Pro: it provides an ‘insurance policy’ against rate rises which could save you money over the fixed period if a Lender decides to increase before you settle
  • Pro: gives the borrower the certainty of knowing what the repayments will be during the fixed period
  • Con: there is no guarantee rates will rise during the time before settlement, so a borrower can pay the fee unnecessarily
  • Con: taking out a rate lock too soon. The rate lock could expire before settlement

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