What is a home loan rate-lock?
When you are applying for a fixed rate home loan, most banks won’t guarantee your rate at the time of application. For example: if you apply for a 5.49% 4 year fixed rate, your actual fixed rate interest rate would be whatever that banks 4 year fixed rate is at settlement.
For a fee, you can lock in the rate you applied for. If you add rate-lock to your application, you will get the rate you applied for as long as you settle within the next 90 days.
The fee varies from lender to lender, but is usually $500 - $750. Macquarie offers a free rate-lock with their fixed rates.
A couple of notes on rate-lock:
- It is generally not available for pre-approvals. You can still add a rate-lock later once you’ve found a property to purchase.
- If the interest rate goes down, most bank will give you the lower rate. Some lenders will keep you locked to the applied rate.
When and how do I apply for rate-lock?
Generally, the rate-lock option is available in the application documents and should be setup by your Broker. You will just need to request it in writing when you’re providing your documents for your formal approval.
How do I pay the fee for the rate-lock?
Most banks will do this via Direct Debit, details of which are entered into the home loan application documents. The fee is generally payable either 24 hours after your application, or at settlement. The fee is non-refundable if your application doesn’t go ahead for any reason.
Should I pay for the rate-lock?
There are many factors that can affect your decision:
- Is it a long or short settlement? The longer your settlement, the more likely it is that the rate may change.
- How much are you applying for? If you’re only applying for $100,000, paying a $750 rate-lock is seldom of benefit – as a rise in interest rates won’t affect you significantly. If you’re applying for $1mil+ - the benefit of rate-lock is much more significant.
- Are rates currently stable? If the rates are changing regularly and significantly, a rate-lock may be beneficial.
If you won’t be happy with a higher rate than you’re applying for, a rate-lock is always recommended.
If you would like to see specific figures for your loan amount, we can give you a breakdown of how an interest rate rise will affect your home loan repayments – just email me at email@example.com.