5 Tips To Know Before Locking In A New Interest Rate
You might have heard now is a good time to fix your mortgage interest rate. Interest rate in general, can go up and down frequently depending on a range of factors and even minor changes on these interest rates can quickly pile up on your finances due to your repayments changing.
It is impossible to predict the movement of an interest rate in the weeks or months it takes to settle on your home loan. That is why many people try to mitigate the risk of this rapid fluctuation by getting a mortgage interest rate lock on their fixed rate loan.
If you have thought about getting a rate lock and are looking for advice, it would be best to talk to a mortgage broker. They have a legal duty to work in your best interest and will help you navigate your options and assess what is best for your situation.
Read below for tips you need to know before locking in a new interest rate.
Why do mortgage rates change?
Interest rates are determined by many different factors, the most important one being the economy. If the economy is doing well, then interest rates will go up. If the economy is slowing, then interest rates will fall.
Another factor is the Reserve Bank of Australia (RBA) cash rate which influences mortgage rates. The RBA rate is manipulated by the Government Reserve Bank of Australia to keep inflation in check.
Next is the demand for mortgages. High demands for homes normally means higher mortgage rates, and low demand means low rates which could encourage prospective home buyers to purchase property.
What is a mortgage fixed rate lock?
A mortgage rate lock is an offer from a lender to protect you from high interest rates for a specified period of time. The lock ensures your interest rate will not be changed for the period selected ie: 3 or 5 years as an example.
If you plan on obtaining or refinancing a mortgage with a fixed priced monthly repayment, then a mortgage rate lock could ensure you protect the rate leading into settlement.
Before you lock in a new interest rate, here are a few things to consider.
1. Know the expiry date of your current fixed rate.
It helps for borrowers to know when their existing fixed rate will expire so they can act promptly. It usually takes six to eight weeks for notifications to come through.
To lock your mortgage loan‘s interest rate, you can either secure it from the moment your loan application is approved, and up to approximately 1 week before settlement – as loan documents may be necessary to be reworked. It is normally sorted out at the front end of the application so you are fully aware of implications and costs.
If you have misgivings about paying for a rate lock, talk to your broker. They can tell you how much time it takes to settle as well as your best option for a rate lock period.
2. Get your mortgage broker to review rates from other lenders.
Rates vary widely depending on the loan product. Your mortgage broker will research fixed rates available to you from a range of banks and lenders on their panel. Your mortgage broker can also negotiate with your current lender on your behalf. You maybe able to score the right rate with your current lender to reduce or cement your repayments.
A professional mortgage broker will also do further market research to look at possible alternatives that you qualify for, to help you make your final decision.
3. Evaluate your personal plans and timeline.
You must time your financial decisions around your personal plans. Any lifestyle change like having a baby, changing jobs or careers, or making huge lifestyle changes can impact your financial capabilities.
Evaluating your own timeline with your broker will help you decide if you want a short-term fixed rate or a long-term fixed rate, or a variable loan when you are deciding on the most suitable set up for your circumstances.
4. Look up and consider other possible rate options.
Do research on recommended mortgage solutions and use online mortgage calculators to customise your repayments based on your budget. You also have to check your rate options.
You can go on a fixed mortgage rate which will remain the same for a specified time period, ranging from 12 months to several years. On the other hand, you can opt for a variable mortgage interest rate which will mean increases or decreases to your repayment amount as interest rates change. An expert mortgage broker will take all of your personal factors into consideration when advising you on which loan, and if fixing or not fixing, is right for you.
5. Restructure your mortgage to suit your needs
Restructuring your mortgage means changing the way you repay your debt. This can include lengthening the overall length term or altering the frequency of your interest payments.
You can also ‘spread the risk’ by breaking your loan up into pieces and having it fixed across different terms. This way, you can avoid getting hit with a sudden increase following the expiry of your fixed rate.
We highly recommend speaking to a mortgage broker to understand all your options. It is our job to explain your options and what they will mean for you so you can be confident you are making the right mortgage decisions for you and your financial goals.
Is there a “right time” to lock in a new rate?
Short answer is no. The “right time” will depend on your individual circumstances and the current financial state of both your own situation and that of the Australian economy.
If you need advice on what your next steps should be, the North Brisbane Home Loans team will be glad to help. Contact us today on 07 3889 9719.
