Imagine comparing home loans and finally finding the perfect loan with a great interest rate. You fill out your application and submit it. But while you're waiting for settlement to take place, the lender lifts rates on its home loans. By the time you get the keys to your place, your home loan has a higher rate. That's where a rate lock comes in handy.
How does a home loan rate lock work?
When you buy a property you need to get your home loan application sorted quickly. But there will be a delay between your loan approval and the actual settlement day, when you take possession of your home and start repaying your loan.
During this time, your lender could increase interest rates on its loans. If you pay a small fee you get a rate lock. This means you get the rate you applied for even if it jumps up during settlement.
Lenders offer rate locks on fixed rate loans, not variable rate loans. It's not always available, so check before you apply for a loan.
Example: Susan opts for a rate lock
Susan has been looking for her dream house for quite some time and finally has found one that suits her and her young family. She takes out a $450,000 loan over 30 years.
She has applied for a fixed home loan with a rate of 2.50% for three years. This means Susan can budget for her repayments accurately for 3 whole years. Settlement is 60 days, and Susan is worried that interest rates will rise soon. So she opts for a rate lock, with a $100 fee.
Some time after submitting the application, the rate for her loan rises to 2.75%. Because of her rate lock she has avoided a rate hike of 0.25%. In dollar terms this is a big saving. Susan's monthly repayments at 2.50% are $1,778. At 2.75% she would be stuck paying $1,837 a month. Over 3 years, that $400 rate lock fee has saved her $2,124 in interest charges.
Risks and benefits of locking in your rate
Pros
No surprises. You can apply for a fixed rate home loan and not worry about rates rising before your loan is approved.
If rates drop you can still benefit. If during the rate lock period rates drop, many lenders will still allow you to benefit from the lower rates. As always, check the terms and conditions.
Cons
Rate lock fees. Rate locks can cost between $300 to $750 and in some cases even more. This is a lot of money to pay, especially if rates don't rise during settlement.
More questions about rate locks
According to analysis of all the rate lock fees in Finder's database, the average home loan rate lock fee is $460.
You can usually lock a rate in for 90 days before your loan settles.
A rate lock is generally only applicable on fixed rate home loans.
Your lender will hopefully put you on the lower rate, although you may have to ask them to do so. And you'll probably still have to pay the rate lock fee.
Richard Whitten is a money editor at Finder, and has been covering home loans, property and personal finance for 6+ years. He has written for Yahoo Finance, Money Magazine and Homely; and has appeared on various radio shows nationwide. He holds a Certificate IV in mortgage broking and finance (RG 206), a Tier 1 Generic Knowledge certification and a Tier 2 General Advice Deposit Products (RG 146) certification. See full bio
Richard's expertise
Richard has written 532 Finder guides across topics including:
Home loan cashback deals can help you refinance to a cheaper interest rate and get a lump sum cash payment. Compare the latest deals and check your eligibility today.
Looking for a loan to fund a small residential property development such as a duplex or townhouse? Find out how to get the financing you need in this handy guide.
Locking your home loan interest rate usually comes with a fee. So if you’ve applied for it, yes, you still have to pay the fee even when you’re unable to settle your loan/it goes over 90 days. Contacting your lender directly is also best so they may be able to advise as to how much and when would the fee be charged.
How likely would you be to recommend Finder to a friend or colleague?
0
1
2
3
4
5
6
7
8
9
10
Very UnlikelyExtremely Likely
Required
Thank you for your feedback.
Our goal is to create the best possible product, and your thoughts, ideas and suggestions play a major role in helping us identify opportunities to improve.
Important information about this website
finder.com.au is one of Australia's leading comparison websites. We are committed to our readers and stands by our editorial principles
We try to take an open and transparent approach and provide a broad-based comparison service. However, you should be aware that while we are an independently owned service, our comparison service does not include all providers or all products available in the market.
Some product issuers may provide products or offer services through multiple brands, associated companies or different labeling arrangements. This can make it difficult for consumers to compare alternatives or identify the companies behind the products. However, we aim to provide information to enable consumers to understand these issues.
We make money by featuring products on our site. Compensation received from the providers featured on our site can influence which products we write about as well as where and how products appear on our page, but the order or placement of these products does not influence our assessment or opinions of them, nor is it an endorsement or recommendation for them.
Products marked as 'Top Pick', 'Promoted' or 'Advertisement' are prominently displayed either as a result of a commercial advertising arrangement or to highlight a particular product, provider or feature. Finder may receive remuneration from the Provider if you click on the related link, purchase or enquire about the product. Finder's decision to show a 'promoted' product is neither a recommendation that the product is appropriate for you nor an indication that the product is the best in its category. We encourage you to use the tools and information we provide to compare your options.
Where our site links to particular products or displays 'Go to site' buttons, we may receive a commission, referral fee or payment when you click on those buttons or apply for a product. You can learn more about how we make money.
When products are grouped in a table or list, the order in which they are initially sorted may be influenced by a range of factors including price, fees and discounts; commercial partnerships; product features; and brand popularity. We provide tools so you can sort and filter these lists to highlight features that matter to you.
Please read our website terms of use and privacy policy for more information about our services and our approach to privacy.
We update our data regularly, but information can change between updates. Confirm details with the provider you're interested in before making a decision.
Do I need to pay rate lock if it goes over 90 days and I am unable to settle the property?
Hi Peter,
Thanks for your question.
Locking your home loan interest rate usually comes with a fee. So if you’ve applied for it, yes, you still have to pay the fee even when you’re unable to settle your loan/it goes over 90 days. Contacting your lender directly is also best so they may be able to advise as to how much and when would the fee be charged.
Cheers,
May