With recent inflation figures putting upward pressure on interest rates, without a doubt many borrowers are looking at fixing their mortgage rate. For those who already have a loan, it's a simple matter of seeing your lender and instructing them to switch from variable to fixed rate.
For those who are still waiting for settlement, you might be nervously wondering if the fixed rate will move up between the periods of sale contract and settlement date. Most lenders do not guarantee your fixed interest rate will remain the same and your rate will be based on the rate available as at the settlement day.
The great news is that many lenders now offer a rate lock to guarantee the fixed rate that they offer during this period. It simply means keeping the same rate, that being your "fixed rate", in between signing a contract of sale and the settlement.
Do I need this? It's more a question of how an interest rate movement will affect you. Just like a fixed rate loan, rate lock offers peace of mind in knowing that you'll get the rate that you've been offered initially.
From 135 lenders who offer 3-year fixed rate loan, there are 29 lenders offer this feature. Not many, but you will find this feature on most banks' mortgage products.
And here is some not-so-surprising news. Rate lock comes at a cost. Some lenders charge a fixed cost, others charge based on a percentage of your loan amount. As an average for a $300,000 loan, it will cost you $400 to lock your rate. The period of the rate lock may vary from one institution to other. The common period is 90 days.
The major question you need to answer is, am I better off by using rate lock? It depends on three factors; your perception on the future movement of interest rates, your loan amount and the fixed rate term that you want to have.
For example, if you think that it is likely that the rate on a fixed rate loan will go up before your property settlement, then you may want to consider the following.
Your loan amount and fixed rate term affect your decision to lock your rate. The higher your loan amount, more likely you will benefit from locking your rate if the interest rate moves up. On the other hand, the shorter your fixed rate term, the less you will benefit from paying this.
In the end, it simply works in a similar way as any other insurance. Rate lock gives you peace of mind that your interest rate will not move up before the settlement.
How do I compare mortgages?RateCity is the best website to shop around on for over 2000 home loans and most other financial products. At RateCity, you can use expert comparative data from CANSTAR CANNEX, Australia's leading financial research and ratings firm. CANSTAR CANNEX has analysed and evaluated hundreds of products to award five stars to only the very best. The CANSTAR CANNEX star ratings go much further than just looking at interest rates. They also take into account important features so you can be confident you are getting the best product.
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