Now that the predicted interest rate rises have come to fruition, many mortgage holders are examining their home loan products and looking at what cheaper options may be available. Given that there is the real possibility of further increases, some applicants are exploring fixed rate loans to lock in a good rate and have the certainty of what their repayments will look like for a set period.

Fixed rate loans are a great option for those who like to operate their finances within a strict budget and plan ahead. With many fixed rate loans now being less restrictive than in the past, they can also offer the flexibility many prospective mortgage holders desire.

However, unless you opt to “Rate Lock” when you apply for the loan, the fixed interest rate is only guaranteed at settlement. This means, if the product’s interest rate moves upwards prior to your new loan settling, the new rate will be applicable. That is, unless you “lock it in”.

How does a rate lock work?

If an applicant feels that a rate rise could potentially impact them, then they can opt to lock in the current advertised fixed rate, but in doing so, incur a cost. Some lenders have a flat rate lock fee, others charge as a percentage of the loan amount. The amount of time the rate lasts for varies from lender to lender, but you can expect a validity of around 60 – 90 days. As each lender has a different rate lock policy, it is imperative to run through the pros and cons with your mortgage broker to determine if locking in will be to your advantage.

Should you rate lock?

The decision to lock in your rate is at your own discretion, though the decision should be made in tandem with a detailed discussion with your mortgage broker. Each person’s scenario is different and the lender, loan amount and fixed term all play a part in determining how much you may be charged and what is beneficial for one applicant may not be for the next.

There is much discussion about the probability of more rate rises this year, so if you are in the market for a new home loan then ensure you have not only a chat to your mortgage broker about fixed rates, but also about rate locking.