Rate Lock - Remove the fear of missing out

Rates are low. Exceptionally so. 

With fixed rates currently sitting lower than variable rates, it’s no surprise that we are seeing more & more of our clients opt for a fixed rate option. This is understandable with some lenders offering fixed rates as competitive as 1.89% for 2 years.

While it’s impossible to truly predict where rates may move in the near future, one thing that is certain is that rates will eventually move. Over the last few months we have seen fixed rates fluctuate just as much as the variable rates. This carries with it both pro’s & con’s with the possibility of rates increasing or decreasing midway through the application process. 

With this in mind, there is a means of avoiding any nasty surprises when considering fixing your loan; rate lock. 

Offered by the majority of lenders, a rate lock will secure the desired fixed rate for a period of time (this tends to be 90 days) with the intention of protecting you from rising interest rates - in some instances a rate lock will not only protect you from rising interest rates but guarantee you an even lower rate if rates fall during the application process. 

The rate lock feature does come at a cost, which depending upon the lender, can be a flat fee or a percentage of the total loan amount. An example of this is 0.15% of the loan amount - 

If you have a loan of $500,000 x 0.15% = rate lock fee of $750. 

The question then is do you take the chance & risk your desired fixed rate increasing before you have the chance to lock it in? Or do you pay the fee, lock the rate & ensure no nasty surprises. 

This is where you should engage with a broker & together, run the numbers. If the rate lock fee ultimately exceeds the potential interest rate savings, then this may not be the option for you. Where you are most likely to find a cost benefit to a rate lock is when you are looking to fix a higher loan amount - the greater the loan, the greater the savings. 

Ultimately, you should be informed of your options to ensure your ideal outcome.

Disclaimer: This document has been created by Loan Market Pty Ltd (ABN 89 105 230 019, Australian Credit Licence number 390222). It provides an overview or summary only and it should not be considered a comprehensive statement on any matter.You should before acting in reliance upon this information seek independent professional lending or taxation advice as appropriate specific to your objectives, financial circumstances or needs. Information included has been sourced from third parties and has not been independently verified. Accordingly, Loan Market Pty Ltd is not in any way responsible for nor provides any warranty express or implied as to its accuracy or relevance.