By using rate lock, we just saved a client $27,000 over 5 years!
Interest rates can change dramatically, sometimes in the time from applying for a loan, and actually drawing the loan for a property purchase. Many borrowers are not aware that the fixed rate they see advertised is not the fixed rate they receive on the day of settlement i.e. in 6 weeks time.

A feature called “Rate Lock” is available with most Fixed Rate Loans. For a small fee of 0.15% of the loan amount, you are able to lock in your rate when you apply, and it lasts for up to 90 days allowing you to receive the rate that you were attracted to at the start.

Our most recent client locked in a 5 year fixed rate at 5.89%pa, and the new fixed rate for their loan on the day of settlement was 6.99%pa. That is a saving of 1.1%pa for the next 5 years ($5,500per year) – just by paying a small fee at the start ($750).

Our Plan Assist Mortgage Advisory Team are able to help your clients decide on whether Rate Lock is suitable for them. Call Plan Assist on 02 9449 2333 to discuss this feature and others loan features today.

Short Answer: If it’s a suitable strategy for you, within the next 3 months.

Long Answer:
Historically sticking with the variable rate triumphs over fixing interest rates, just like picking a falling or rising stock on the stock market. You can never pick the exact timing of the market.

Fixing now or in 3 months won’t make too much difference. However, leave it for 12 months and you may lose an opportunity to purchase insurance at a good rate. Most commentators are predicting the fixed rates next year should be in the 7%pa or higher due to more optimism about the future. If it’s the right thing for you, where you have longer term debt or investments, then in the next 3 months may be your best opportunity.

Be Careful – Real Life Examples:

a) Client sold home, Paid out home loan and paid $16,000 break cost in August 2008
$450,000 Home Loan, 5 years fixed at 7.45%pa, 3 years remaining

b) Client was quoted in March 2009: $62,000 break cost
$500,000 Home Loan, 5 years fixed at 7.8%pa, 4.2 years remaining

It’s important to look at your individual situation and assess whether fixed rate loans are a suitable rate-hedge strategy. Basically, if you don’t change property and home loans from year to year, or you have long term investments & loans, it may be the best time to consider changing to a fixed rate loan.

To find out more about fixing your interest rate, call our Plan Assist Mortgage Team on 02 9449 2333.

As we mentioned previously, we are most likely entering the low point of interest rates right now.

Westpac yesterday advised us that they are increasing their fixed rates by 0.3%pa effective tomorrow, and most other lenders have indicated this will be the trend for fixed rates in the coming months.

Variable rates are most likely to be stable or drop slightly this year, however looking forwards, its about the bottom of cycle.
If you think fixing is the right thing for you, then now is the time to implement that strategy.

To find out more about whether or not its suitable for you, contact us or call the Plan Assist Mortgage Team on 02 9449 2333.