If you have found the perfect property to meet your needs along with a competitive fixed home loan rate, you may consider opting to ‘lock-in’ the fixed rate to provide extra assurance against rising interest rates. Here we’ll take a look at what exactly a rate lock is, alongside pros and cons to locking in your home loan interest rate.
While fixed home loan rates provide security ensuring your repayments and interest remain consistent throughout the life of the loan, like any financial product they are subject to market movement. This means the home loan rates offered by lenders are subject to change up until your home loan has reached settlement.
A rate lock is a feature of a fixed rate home loan that can guarantee a fixed interest rate for your chosen fixed rate term and protect you against rate rises. With a rate lock, if the rate drops most lenders would allow you to have the lower rate, but if rates increased you would be protected as you are ‘locked-in’ to receive the lower rate.
Rate locking is an option that can be only applied to a fixed rate home loan. Some lenders may not offer a rate locking feature, however here at loans.com.au we offer customers the option to lock in the advertised fixed home loan rate for 60 days at a cost of $350.
Check out our fixed rate home loan options for owner occupiers.
Bob has found his dream home and a lender offered him a competitive fixed interest rate of 5.00% p.a.
He applies in July when this rate is fresh, but doesn’t actually settle on the loan until August, by which point the fixed rate has jumped to 5.50% p.a.
Being that his home loan is $600,000 on a 30-year term, this results in a difference of $185.80 per month.
Bob weighs up the options and figures it would have been worth paying the $350 rate lock as it could have paid for itself in two months.
Locking in a fixed rate can be achieved any time before settlement, however these conditions will vary across lenders. Some lenders will initiate a rate lock from the date you apply for the feature, while others will wait until the rate locking fee is paid before initiating. It’s important to clarify with your lender when the rate lock commences to ensure that you do not end up paying a higher interest rate than what could be otherwise avoided.
As Australia's leading online lender, loans.com.au has been helping people into their dream homes and cars for more than 10 years. Our content is written and reviewed by experienced financial experts. The information we provide is general in nature and does not take into account your personal objectives or needs. If you'd like to chat to one of our lending specialists about a home or car loan, contact us on Live Chat or by calling 13 10 90.