Can a fixed rate change after you apply?
Yes. The fixed rate quoted when you apply for a home loan may change before settlement. Many lenders use the rate available when your loan starts. You may be able to secure your rate before settlement by paying a rate-lock fee, depending on your lender’s rules.
Choosing a fixed-rate home loan does not necessarily lock in the quoted rate straight away. If your lender changes its fixed rates while your application is being processed, the rate you start paying could be different.
Once your fixed-rate period starts, your interest rate stays the same for that period. Once your loan starts, your rate stays the same for the fixed term. Before settlement, however, the quoted rate may still change.
How does a home loan rate lock work?
Rate lock lets you secure a fixed interest rate for a limited time before settlement. It may protect you if the lender raises that rate before your loan starts.
Many lenders offer a rate-lock period of up to 90 days, usually for a fee. You need to meet their conditions and settle within the agreed period for the protection to apply.
The rate-lock period is separate from your fixed-rate term. For example, you might pay to secure a rate for up to 90 days before settlement, then pay that rate for a two-year fixed term once your loan starts.
Ask your lender or broker to confirm when the lock takes effect. Do not assume the rate is secured simply because you have submitted your home loan application or asked about rate lock.
How much could a rate change affect your repayments?
Suppose you apply for a $600,000 home loan over 30 years at a fixed rate of 6.00%. Before settlement, the rate that would apply to your loan rises to 6.25%.
Without an effective rate lock, your starting repayment could change as follows:
That is about $97 more each month, even though you are borrowing the same amount over the same loan term.
These rates are examples, not current offers. The calculation assumes monthly principal-and-interest repayments over 30 years and excludes fees. It shows the starting repayment at each rate; it does not assume either rate stays fixed for all 30 years.
You can use Bheja’s home loan repayment calculator to compare repayments using your own loan amount, term and quoted rates.
What does rate lock cost?
Rate-lock fees vary between lenders. Some charge a flat fee, while others calculate the fee based on the amount you borrow.
If you have a split loan, ask how the fee is calculated for the portion you want to fix.
Before paying, confirm the total fee, when it is charged and whether it is refundable if your loan does not go ahead.
Also check whether changing your loan amount or fixed term could affect the fee. If settlement is delayed beyond the rate-lock period, you may need to pay for a new lock at the rate available then.
Rate lock can provide certainty about your starting rate. Whether it saves you money depends on what happens to rates and the terms of your agreement.
What happens if rates fall or settlement is delayed?
Do not assume you will automatically get a lower rate if your lender cuts rates after you lock.
The treatment of a rate cut depends on the lender. Ask whether you would receive the lower rate, need to cancel the lock, or remain on the rate you secured. Cancelling may mean losing the fee you paid.
Settlement delays can also matter. If your rate lock expires before your loan starts, the original protection may end. You may need a new arrangement at the rate available then, potentially with another fee.
If your settlement date changes, contact your lender or broker before the lock expires. Confirm the rate that would apply and any options available to you.
What should you check if you’re considering fixing now?
A fixed rate may appeal if you want predictable repayments and protection from further rate rises during the fixed term. But fixing does not necessarily mean paying less.
Compare the fixed rate offered with variable options available to you. Look at fees, offset access, limits on extra repayments and potential break costs if you need to refinance or sell during the fixed term.
If you decide to fix, check whether the quoted rate is secured before settlement. Ask your lender or broker:
- Can the quoted rate change before my loan starts?
- Is rate lock available for my application?
- What rate and repayment would I be securing?
- When does the lock start and expire?
- What is the total fee, and when is it payable?
- What happens if rates fall, settlement is delayed or the loan does not go ahead?
Get the details in writing so you know which rate you can rely on when planning your repayments.
