Everything you need to know about rate locking

So you’ve found the perfect property, signed the contract of sale and have just found a fixed interest home loan that suits your needs. If this is the case, it may be worth being aware of rate locking, and talking to your lender about whether it is an option that you should consider.

So what exactly is rate locking?

Rate locking is an option that can be applied to a fixed rate home loan. This will lock in the interest rate of your fixed interest home loan before your loan application has been completed. However, some lenders will allow you to have a lower interest rate if it drops before your settlement, so make sure to check with your lender before locking your rate.

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When is rate locking necessary?

Whilst you do not have to choose to rate lock your fixed loan, it might be a good idea if you expect your application to take a while to be approved, or if you simply want peace of mind that should the interest rates rise, your home loan will not be affected.

What should I be aware of if I’m thinking about applying?

It’s important to keep in mind that your lender may charge you a rate lock fee which can amount to 0.20% of the loan amount. However, you should ask your lender about rate locking because some do offer it for free, for the first 60 days.

When will rate locking start and end?

Starting time on your rate lock will vary depending on the lender, so it’s important to clarify with them to ensure that you do not end up paying a high interest rate. Whilst some will place a rate lock on your loan from the date you apply, others will only commence it once you’ve paid the rate locking fee. In regards to when it ends, once again this will differ from lender to lender. Some lenders offer you 60 days, whilst others are willing to rate lock for 3 months, which may be something to consider if you have a complicated loan application that is expected to take some time to process.

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What happens if the interest rate drops during the rate locking period?

Fortunately, many lenders will actually let you pay less interest on your locked rate if there is a drop in the interest rate. This is not a definite however, so it might be a good idea to consult with your lender before deciding on a rate lock.

If you are choosing a fixed home loan, it may be helpful to talk to one of our Lendi Home Loan Specialists, who can help you decide on a lender and whether choosing a rate locking option is right for you.