Rate locks allow you as a prospective property buyer to guarantee an interest rate on a fixed rate new or refinanced home loan between the time you apply and the time your property settles. This can be useful in times when home loan interest rates are tipped to increase or are already on the move.
Effective Date
Varied from lender to lender – usually at application, when the lock fee is paid or at the time of application approval
Fees
Some lenders do not charge a fee for this feature, it may be a flat fee or based on a percentage of the loan amount (>0.20%)
Duration
90 days, if you need an extension most lenders will charge you another rate lock fee
Flexibility
Rate lock fees are generally non-refundable. If you decide to select a different fixed term and lock its rate during the process you may be charged another rate lock fee
Rate Changes
If the fixed interest rate drops during your rate lock period generally lenders apply the new lower rate to your loan, but do not refund your rate lock fee
Generally, the longer the fixed rate period you apply for, the more you stand to gain by locking your rate. Here are two scenarios and how much two borrowers look to save if interest rates on their loan product increase*:
Borrower 1
Ari is looking to purchase a property with a $1,000,000 30 year home loan under a 2 year fixed rate of 2.49%. He pays a flat rate lock fee of $500.
Increase
Rate
2 Years Interest
Interest Increase
Rate Lock Savings
0.00%
2.49%
48,712
–
(500)
0.05%
2.54%
49,699
987
487
0.10%
2.59%
50,686
1,974
1,474
0.25%
2.74%
53,650
4,938
4,438
0.50%
2.99%
59,586
10,874
10,374
Rate Increase
2 Years Interest
Interest Increase
0.0% (2.49%)
$48,712
–
Rate Lock Savings = –$500
0.05% (2.54%)
$49,699
$987
Rate Lock Savings = $487
0.10% (2.59%)
$50,686
$1,974
Rate Lock Savings = $1,474
0.25% (2.74%)
$53,650
$4,938
Rate Lock Savings = $4,438
0.50% (2.99%)
$59,586
$10,874
Rate Lock Savings = $10,374
Borrower 2
Genevieve is looking to refinance her current $2,000,000 20 year home loan to a 5 year fixed rate product with a rate of 3.29%. She pays a rate lock fee of 0.15% of the loan amount, or $3,000.
Increase
Rate
2 Years Interest
Interest Increase
Rate Lock Savings
0.00%
3.29%
298,784
–
(3,000)
0.05%
3.34%
303,468
4,684
1,684
0.10%
3.39%
308,156
9,372
6,372
0.25%
3.54%
322,243
23,459
20,459
0.50%
3.79%
350,518
51,734
48,734
Rate Increase
2 Years Interest
Interest Increase
0.0% (3.29%)
$298,784
–
Rate Lock Savings = –$3,000
0.05% (3.34%)
$303,468
$4,684
Rate Lock Savings = $1,684
0.10% (3.39%)
$308,156
$9,372
Rate Lock Savings = $6,372
0.25% (3.54%)
$322,243
$23,459
Rate Lock Savings = $20,459
0.50% (3.79%)
$350,518
$51,734
Rate Lock Savings = $48,734
While rate locks can provide you peace of mind and potentially save you significant sums of money, it’s also important to weigh this against the rate lock fee requested by your chosen lender. We’ve outlined some popular lenders and their current rate lock fees below:
Lender
Rate Lock Fee
CBA
$500 ($750 after 30 Sep 2022)
Westpac
0.10% of the loan amount
NAB
0.15% of the loan amount
ANZ
$750 per $1 million of lending
Me Bank
$500
ING Australia
$749
Adelaide Bank
No fee (conditions apply)
St George
Min. $500 or 0.15% of the loan amount
Bank of Queensland
0.15% of the loan amount
Macquarie Bank
No fee (conditions apply)
Unibank
0.2% of the loan amount
Rate lock fees as of 01/02/2022
Variation between the fees charged and term and conditions on different lenders rate locks are significant. Whilst a rate lock on its own would never be the primary factor in deciding between lenders, in a market with quickly rising rates like we find ourselves now it is certainly an important factor.
Much like tailoring the right loan product to suit your current and future circumstances, your credit advisor can advise you of the nitty-gritty on a range of loan products so you can make an informed decision.
