There’s nothing like changes to interest rates to wreak havoc on your mortgage repayments schedule, but what if we told you that rate lock could help avoid this?
Imagine this: you’ve finally found a property to purchase, you’ve signed the contract of sale, and now you’re just waiting for settlement day to arrive. Despite all of your finances being in order with the bank, suddenly you’re hit with an interest rate rise. As the process isn’t fully finalised, you don’t have enough time to reorganise your loan and are in essence forced to pay the extra interest fees.
Most people quite rightly shop around for a great loan package with low interest rates before they commit to a mortgage, particularly first home buyers. Yet, what they don’t know is that they actually get the interest rate on offer when their loan is advanced – not the rate at the time that they apply. Frustrating, right? Thankfully, rate lock may offer a solution.
Your Guide To Interest Rate Lock Options
Interest rates are essentially market prices, which means they are a function of what can be broadly dubbed a case of supply and demand. There are both short term and long term factors that have driven interest rates lower on a global scale, all of which have in one way or another affected us here at home.
However, just because interest rates are currently at record lows, doesn’t mean that they will stay that way forever. When compared to a variable interest rate, or one that fluctuates along with global economies, fixed term interest rates can provide stability, certainty and security. In the past, many people have shied away from them and have taken the gamble of tying their mortgage repayments to a rate that could go up or down. Unfortunately, even fixed interest rates are liable to change if you don’t take precautions such as rate lock.
A rate lock is usually applied before a fixed rate home loan settles, as processing your home loan application does indeed take some time. Depending on the lending provider and the rate lock options available, once you ‘lock’ in the interest rate with them, the rate you apply for will be secured and confirmed for up to ninety days before your loan settles.
One major point to mull over in regards to your options for rate lock is that this service is rarely ever free. Some lenders have fixed fees such as $750 for loans up to $1,000,000, while others charge a percentage such as 0.15% of the loan amount. While the primary appeal of rate lock is that buyers are protected from hikes in interest fees, if interest rates instead go down during your rate lock period, most lenders will allow you to enjoy the lower rate – although you’ll still have to pay the rate lock fee. Some rates may be locked in at settlement, and with others it’s when the application is. Ultimately, the terms and conditions linked to rate lock will vary significantly between each lending provider, so it’s important that you do your research before making any financial commitments.
When deciding if rate lock is worth considering for your own individual set of circumstances, it’s always worth enlisting the services of a reputable mortgage broker to ensure that you get the right advice. Economic developments around the world have a major impact on interest rates, so it’s important that you partner with a professional that has their finger on the pulse when it comes to navigating the world of finance – but where do you find one?
Taking The Stress Out Of Property Finance
The big attraction of buying your own home is just that – it’s yours, once you’ve paid back the banks of course. Apart from having somewhere to live, the quest for home ownership is also about having a long term investment strategy. If we’re looking at it from the viewpoint of decades instead of months, generally house prices do rise, and so does the value of your investment.
Buying your first property is also one of the first steps of building wealth, as the equity in the home will usually allow you the opportunity to access further loans if that’s what’s on your radar, such as shares, a managed fund, or even a second investment property. However, entering the market as a first home buyer isn’t always easy, which is why we’ve compiled our very own in depth First Home Buyers Guide. This resource is completely free to download, and can be a game changer when it comes to ensuring that you’re up to speed on how to get into your first home faster.
With a background in banking, finance, business development and project management, there’s no better advocate to have on your team than Nikki Berzin. As a fully qualified mortgage broker and director of Cherry Lending & Finance, Nikki is passionate about all things finance, and empowering her clients with the tools to hit their property goals is what she does best, and another example of this is the free to use Savings Goal Calculator found on the Cherry Lending & Finance website.
If you’re looking to get into your first home, purchase an investment property or even want to look at your options for refinancing, the first step is starting the conversation. Get in touch with Nikki today, or call her directly on 0427 374 155 to bring your mortgage dreams to life.
Disclaimer: Your full financial needs and requirements need to be assessed prior to any offer or acceptance of a loan product. Subject to lenders terms and conditions, fees and charges and eligibility apply.
Credit Representative 499652 is authorised under Australian Credit License 389328.
