Borrowers are being warned to check fees before fixing. Picture: Jeremy Piper
ANALYSIS
Imagine you were online shopping and saw a T-shirt you liked, on sale, discounted from $70 to $50 and with free delivery.
When you went to buy it, a pop-up message informed you that to guarantee paying $50, you had to pay a price lock fee of $10. Otherwise, the discount might be removed between the time of order and the time of delivery and your credit card would be charged the full $70.
Not such a great deal all of a sudden.
Luckily retailers don’t charge lock fees. Unluckily, banks do.
With all the talk of surging oil prices, global conflict and the chance for multiple rate hikes, uncertainty is everywhere at the moment.
Borrowers looking to regain some form of control will now be looking at fixing the interest on their home loan products.
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But finding a fixed rate home loan that seems like a good deal is only half the job.
It can take weeks between applying for a home loan and having it approved. And within that time, the fixed rate you thought you were locking in, can actually be raised, unless you pay a ‘rate lock fee’.
Fixing a home loan can cost a lot extra. Picture: John Appleyard
And this often isn’t cheap. Banks can charge up to 0.2 per cent of a loan amount as a rate lock fee, which on a $1 million loan is $2000.
In some cases, this could mean you’re actually worse off by fixing for more than the first year of the term.
Money.com.au crunched the numbers and found rate lock fees could be quite different from lender to lender, with some charging flat fees, some charging percentages of the loan and some rare unicorns charging no fee at all.
The worst deal was with Bank of Sydney, charging 0.20 per cent of the loan. As mentioned, that’s $2000 on a $1 million loan.
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There are then a host of lenders charging 0.15 per cent, or $1500 on a $1m loan, including UniBank, Teachers Mutual Bank, People’s Choice, NAB, Heritage Bank, AMP and Beyond Bank.
At the other end of the scale, two banks don’t charge anything to lock in a rate.
These are Macquarie Bank and Bendigo Bank.
The next best deal after those two is MOVE Bank, with a flat fee of $375. Homestar has a flat fee of $495 and then there UBank, Queensland Country Bank and Laboratories Credit Union all charge a flat $500.
Nick Burgess said plenty of borrowers are being caught out by rate lock fees.
Money.com.au mortgage expert Nick Burgess said borrowers often focused on the advertised rate and could be caught off guard by the added cost of rate lock fees.
“Market uncertainty and expectations of more rate pain this year are driving a rush into fixed rates, but some borrowers are being caught out because they’re trying to move quickly to ‘beat the banks’ and then panic when their rate lock fee is calculate,” he said. “They don’t realise these fees are structured differently depending on the lender.”
“In cases where a percentage-based rate lock fee is greater than a flat fee, it should be weighed against your new fixed rate and monthly repayments, as well as any expected savings compared with staying variable, to decide whether paying a lock rate fee is genuinely worthwhile.
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“We know rate lock fees can frustrate borrowers. In some cases, brokers can negotiate with lenders to reduce the cost to the customer and help get the deal across the line. It’s never guaranteed, but it’s worth asking the question.”
What you need to know about ‘rate lock’
-Most banks charge a fee to secure a fixed rate at its current level, either as a flat amount or a percentage of the loan size. However, some lenders like Bendigo Bank and Macquarie, don’t apply a rate lock fee.
-Rate locks typically expire after 90 days. If settlement is delayed beyond that period, you can usually request an extension before the rate lock expires, typically at an additional cost. If the lock expires, you’ll need to reapply at the current rate and pay another rate lock fee.
-Rate lock fees are non-refundable (unless your loan application is declined). The fee is typically payable either when the loan is approved or at settlement.
-You can apply for a fixed-rate loan without a rate lock, and many borrowers do. That means accepting the risk that the lender could lift its fixed rates (and therefore your loan rate) before your mortgage application is finalised.
-You’ll receive a lower fixed rate if rates fall. A rate lock protects you against rate increases during processing, but it doesn’t prevent you from benefiting if fixed rates move down before settlement.
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