Finding a fixed rate loan at the right price can be crucial to whether you can afford your dream home or investment property. But if you have to delay completion of the purchase you face the possibility that you will lose the cheap rate.
This may not be such a problem when fixed rates are falling, as they have been recently, but might be a deal-breaker if they are rising. Lenders have different approaches to holding rates beyond a certain period.
It may pay to check these out when assessing the deals on offer. ANZ will now hold a fixed rate for up to 60 days, the same as at sister lender National Bank. Rates will not be held beyond 60 days.
Charges of 0.2% for a “lock-in” beyond a certain point are not unusual and HSBC asks for this to hold a rate for more than 14 days.
Mortgage broker Charlie Reid of Mortgage Link Central Otago says that, in general lenders have been reducing their lock-in periods. Where once many would hold a rate for 40 days without charge those time limits have come back to 28 days or less.
“From the banks’ point of view it is a form of fee income.” However the volatility of interest rates is also a factor, encouraging lenders to reduce their exposure by limiting free lock-in periods.
Borrowers need to weigh up the costs of an extended lock-in against the costs they might incur on their mortgage if they have to pay a higher rate.
On a $100,000 loan, a 0.2% charge would be $200. If interest goes up by 0.2% and the rate is fixed for three years the extra cost of a rate rise would be $600. “It may be worth spending $200 to save $600,” says Reid.
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