A rate lock can protect you from forecast rate rises

1 min read

A rate lock can protect you from forecast rate rises

The big four banks have forecast that the Reserve Bank will begin lifting official interest rates from June. If and when that happens, lenders will almost certainly increase their home loan rates.

That would be annoying if you’re about to start looking for a property and you’re planning to get a fixed-rate loan, because it’s possible fixed rates will rise between when you get your pre-approval and when you formally apply for your home loan.

In that case, you’d have to accept the higher interest rate – unless you’d taken out a ‘rate lock’, which is when a bank promises to give you the lower initial interest rate, in return for a fee.

Rate locks, like all insurance policies, are priced so that the provider (i.e. the bank) finishes ahead. So, for the average borrower, the cost of the rate lock is likely to be higher than the savings it provides. But a rate lock can still be valuable by providing peace of mind.

I can model different interest rate scenarios for you, to help you decide if a rate lock is suitable for you.

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