Congratulations! You have found your perfect first home in Adelaide, signed the contract of sale and just obtained a fixed-interest mortgage that matches your requirements. If this is the case, it may be worth being informed of rate locking and talking to your bank about whether it is an option that you should think about.
What Is Rate Locking?
A rate lock is generally applied before a fixed rate home loan completes, as it sometimes may take time to process your mortgage application. Once you lock in the rate, based on the rate lock available, the lender will lock in the rate you affix for up to 90 days before your mortgage settles.
There is usually a fee for this, and if during the rate lock period (90 days), rates go down, most lenders will provide you with the lower rate – however, you will still have to pay the lock rate fee. Some rates may be locked in when the application is made, and with the others, it is during settlement.
Our mortgage specialists can assist you in locating the lender that benefits from interest rate decline after a rate lock. It is an excellent opportunity for first home buyers in Adelaide to make their mortgages more affordable. Do not forget to get your formal loan commitment letter, including rate lock details.
Pros And Cons Of Rate Lock
Pros
If Interest Rate Drops, You Can Still Benefit. If the interest rate falls during the rate lock period, many lending institutions will still allow you lower rates. Make sure you check the terms and conditions.
No Surprises. You can apply for a fixed-rate mortgage without worrying about rising rates before your loan application is approved.
Cons
Fees. While there are banks that offer free rate locks, several others charge a fee. It is tactful to weigh up the costs to review whether it is worth it.
Non-refundable. If your mortgage application is disapproved, the rate locking fee, in most cases, is non-refundable. Verify the terms and conditions with your lender to see if this could apply to you.
Our Two Cents
When considering purchasing your first home in Adelaide with a fixed-rate loan and using a rate lock, you should consult a mortgage broker or financial planner first. They can tell you more about the market prices and may be able to whether the rates might rise or drop in the short term.
You should note that even with the best experts, it is challenging to project where rates might be over a month or a year.