Fixed Rate Information

This is general information regarding fixed rate home loans, specific information will be outlined by the lender you choose in your loan contracts. For specific information about your lender now, please reach out to your broker.

  • Applicant(s) will not obtain the full benefit of rate decreases and will still have some exposure to the risk of rate increases
  • Applicant(s) will generally not be able to change the ratio of the fixed and variable portions during the fixed period
  • Applicant(s) will be required to make separate repayments for each portion
  • Limited or no flexibility in relation to the fixed rate portion concerning making additional repayments, redraws and offset account during the fixed rate period
  • Possibility of expensive break costs in relation to the fixed rate portion if during the fixed rate period, the applicant(s):

–  Repay loan in full;

–  Switch to another product or loan type;

–  Make additional repayments;

–  Sell the property; or

–  Seek further funds.

  • Fixed rate may change between the time of approval and at the time of

drawdown if “Rate Lock” guarantee has not been obtained

 

Rate Lock

When you take out a fixed loan, the rate is not guaranteed until your loan settles/is drawn down.

For example, you select a bank’s 2 year fixed rate at 1.89%. You sign the loan contracts stating 2 years fixed ‘currently at 1.89%’. You are booked in for settlement on Friday. Thursday, the bank can make a decision to increase fixed rates across the whole bank (they don’t single individuals out), and effective immediately the fixed rate is now 1.99%. On the next day when your loan settles, it will settle at 1.99%, not the 1.89% you signed up for.  They do not guarantee the Fixed Rate until the day of settlement.

They do offer a ‘Rate Lock’ or ‘Guaranteed Rate’ Feature that you can purchase, which locks in the fixed rate usually at the time of signing the loan contracts and protects you from any rate increases between signing the loan contracts and settlement. In the above example, if you had chosen rate lock, then you would have still settled your home loan at 1.89% for 2 years fixed, as you would have been protected from the rate increase.

How can you lock in a guaranteed fixed rate?

Unfortunately, “Rate Lock” does incur a fee with most lenders. Usually there is a minimum cost, ranging from $500 – $950 depending on the bank OR 0.15% of the loan amount, whatever is higher.

If you haven’t selected rate lock, and would like to discuss this further, please contact your broker today to find out what this would cost for you, and how you can apply it to your home loan application.