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Everything you need to know about rate locking

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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.

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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, protecting you if rates increase. However, some mortgage lenders will also allow you to have a lower interest rate if rates fall before your settlement, so make sure to check with your lender before locking your rate.

A mortgage broker can help you find a lender that will benefit from an interest rate drop after a rate lock. Both new home loan applicants and borrowers who are refinancing can make use of rate locking. Don’t forget to secure your rate lock in writing with a formal loan commitment letter from the lender.

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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.

Getting a rate lock is a particularly good idea during a volatile market, where mortgage interest rates are fluctuating frequently. A lot can change between you finding your ideal fixed home loan product and your application being approved. This is why getting a rate lock when you apply for a mortgage can be a big help in keeping your home loan costs as low as possible.

How much does rate locking cost?

It’s important to keep in mind that your lender may charge you a rate lock fee. How much you'll be charged will depend on the lender. Many lenders charge a rate locking fee that amounts to around 0.20% of the loan amount.

Other lenders may charge a flat fee, often proportional to the loan amount (e.g. $750 per $1 million). However, you should ask your lender about rate locking because some do offer it for free, for the first 60 days, for example.

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Are there any drawbacks to rate locking?

The main things to be aware of when locking an interest are:

  1. Fees: while there are lenders who offer free rate locks, many others charge a fee. It’s wise to weigh up the costs to check whether it is worth it.
  2. Non-refundable: if your loan application is denied, the rate locking fee won’t always be refundable. Check the terms and conditions with your relevant lender to see if this could apply to you.
  3. Rate drops: if rates drop after you’ve locked in, not all lenders will charge you the lower rate.

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 a mortgage rate lock expires, 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. A longer rate lock period 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.

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The information in this post is general in nature and should not be considered personal or financial advice. You should always seek professional advice or assistance before making any financial decisions.

Tags: fixed interest, rate lock, fixed rate home loans, home loan, first home buyer

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# Quoted rate applies only to PAYG loans with LVR of 80% or less with security in non-remote areas. All applications are subject to assessment and lender approval.
Lendi is a privately owned and operated Australian business. Our mission is to change the way Australians get home loans by providing a faster, smarter and more secure home loan experience designed around the customer’s convenience and needs. Although Lendi compares over 1600 products (2,500+ products including feature and pricing variations) from more than 25 lenders, we don't cover the whole market or compare all features and there may be other features or options available to you. Lendi Group Pty Ltd, which is the ultimate holding company of the Aussie and Lendi businesses is owned by numerous shareholders including; banks such as CBA, 1835i (ANZ’s external venture capital partner) and Macquarie Bank, the Lendi founders and employees, and a number of Australian institutional investors and sophisticated investors including UniSuper.
*WARNING: This comparison rate is true only for the example given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. The comparison rates are based on a loan amount of $150,000 over a loan term of 25 years. Fees and charges apply. All applications are subject to assessment and lender approval. Quoted rate applies only to PAYG loans with LVR of 80% or less with security in non-remote areas. All applications are subject to assessment and lender approval.
IMPORTANT INFORMATION: Loan terms of between 1 Year and 40 Years are available subject to lender and credit criteria. Maximum comparison rate will not exceed 14.99% (see comparison rate warning above). Any calculations or estimated savings do not constitute an offer of credit or a credit quote and are only an estimate of what you may be able to achieve based on the accuracy of the information provided. It doesn't take into account any product features or any applicable fees. Our lending criteria and the basis upon which we assess what you can afford may change at any time without notice. Savings shown are based on user inputted data and a loan term of 30 years. All applications for credit are subject to lender credit approval criteria. Top rates include lenders who are on our panel and are then defined by the circumstances provided by the borrower.
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