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Is a mortgage rate-lock worth it?

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Is a mortgage rate-lock worth it?


With interest rates at record low levels, homeowners are starting to think a lot more about fixing their home loans.

The RBA has made it known that interest rates are likely to stay low for a while yet; however, there is increasing evidence to suggest that they will need to rise sooner rather than later.


With the pressure on supply for construction, labor shortage and the other post Covid factors, experts expect inflation will be on the cards for Australia. Whilst interest rates are expected to rise, inflation is expected to increase quicker and higher than any interest rate rises. For homeowners who want some security around their monthly repayments when other aspects of expenditure are on the rise, a good idea is to look at a fixed-rate home loan.


As the name suggests, a fixed-rate home loan will allow you to lock in your interest rate for a period of time, which is normally around 2-5 years, after which, the loan will generally revert to a variable rate.

One of the things that can catch homeowners out, is the fact that the actual rate you receive on your fixed-rate home loan doesn’t begin until the loan is settled. That means the rate you see when you apply for a fixed-rate home loan can be very different from what you actually get. In an environment in which interest rates are likely to rise, this is something that you need to be aware of.


Rate Lock


One of the things you can do to protect yourself in the event interest rates look as though they are going to rise is to secure a rate lock. As the name suggests, a rate lock will ‘lock in’ the interest rate on your fixed-rate home loan at the time of application or, perhaps, when you pay the rate lock fee.


This means that even if rates move higher between the time you apply and the time the loan is settled, you will still receive the same agreed-upon interest rate.


Generally, lenders charge either a fixed fee or a percentage of the home loan, which is normally up to 0.2%, to access a rate lock.  The rate lock will last anywhere from 60 to 90 days and varies between different lenders.

As interest rates come into focus and more and more borrowers consider either taking out a fixed-rate loan or at least fixing a portion of their mortgage, it might be worth considering whether to look at a rate lock.

A rate lock is most effective in a period when rates will potentially rise. It is also most suited to borrowers who will likely need a bit of time to find and secure a property.


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