Rising Tide Blog

Should you lock it in?

Posted by Matt Hale

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Previously, you may recall that we discussed the viability of choosing a fixed rate home loan or a variable home loan.

Basically, there are three primary things you should consider when choosing whether a fixed or variable rate is right for you. These are as follows: 

  • Is certainty or flexibility more relevant to you?
  • Are there current deals available with favourable terms for fixed or variable loans?
  • What is your financial plan, and how does the loan (and corresponding asset) fit into that plan?

Today I will not delve into whether fixed-rate loans are the ‘better choice’, my suggestion is that you speak to one of our lending specialists like Tom de Fegely for advice in that area.

What I want to bring into discussion is what is a ‘rate-lock’ and is it the right thing for you to explore? 

A ‘rate-lock’ is a feature available to those choosing a fixed-rate loan. You pay an additional fee, and lock in the current rate available from the bank – meaning you are not subject to any variations of interest rates between the time of application and settlement of the loan. The outcome works both ways – if the interest rates available from the bank increase, you win. If they go down, you lose.

Interest rate-lock is less relevant in times when interest rates are dropping, due to the reduced risk of prices going up between the time of loan application and settlement. In the past five years, on average, interest rates have fallen from around 5% to around 2-3%. In that period, unsurprisingly, the take-up of rate lock from Rising Tide clients has been low.

So, when might a rate lock be applicable? Well, as Tom recommends, “If you have an extended period between application and settlement of your property purchase – and you would like complete certainty of your interest rate – then rate lock can be a viable option.”

Overall, rate lock has its place in the ecosystem, but like fixed-rate home loans themselves, it is not for everyone.

Lock in a chat with Tom here to discuss whether a fixed rate and/or rate-lock could be the right decision for you.