What to know about getting a fixed rate after Westpac hikes again
Did you know? If you apply for a fixed rate home loan, that rate's not locked in until settlement.
Over the last few weeks banks have been increasing their fixed rates as the prospect of any further rate cuts diminishes.
Several lenders have increased rates, but Westpac has done so twice in the last 5 weeks.
Its lowest fixed interest at the beginning of December was a 2 year fixed rate at 4.99%. That same loan product at the time of writing is 5.69%.
Westpac's lowest rate is now a 1-year fixed rate at 5.49%.
NAB has also increased its fixed rates this week.
Thinking of fixing your rate?
Compare fixed rate home loans to have rate certainty.
If you're already on a fixed home loan rate you don't really need to worry about fixed rates increasing. Your rate will not change until the end of your fixed rate period.
But if you're thinking of getting a fixed home loan - whether it's a first loan or you're considering switching - there are some things to note:
1. Fixed rates aren't about beating the banks
If you time it right, getting a fixed interest rate can help you save money while variable rates increase: but there's no real way to know what variable rates will do.
2. You'll have less flexibility
Fixed rates are quite strict. Most fixed rate loans only allow you to make a certain amount of extra repayments each year. Although, this is usually around $20,000 so that might not be a problem.
What might be a problem is when you want to make those extra repayments to pay off the rest of your home loan within the fixed period. There can be significant costs to leave the fixed rate loan.
3. Your rate isn't fixed until you settle
You'll pay what the fixed rate is at the time of settlement, not application. Settling the home loan takes a few weeks post-application, but can take as long as 3 months in certain circumstances.
If we use Westpac as an example, if you had applied for one of its fixed rate home loans even 2 weeks ago, you'd probably find you've now got a higher rate.
What to do about it
Thankfully, banks often have something called a 'Rate Lock' option.
This is where you pay a fee to lock in the interest rate you're applying for. This fee could be a few hundred dollars or it could even be a couple of thousand dollars, but the savings you might make over time usually make that fee worth it.
Let's look at an example.
If you applied for that 2-year fixed 4.99% interest rate from Westpac in early November, you'd be expecting to pay $3,218 a month for the next 2 years.
But if you hadn't locked in the rate, you're now looking at $3,479 a month for that same product.
Over 2 years that's a $6,264 difference. A rate lock fee doesn't look so bad then.
The problem is, you won't know whether the fixed rate would change before you settle, so you may also pay the fee and not face a rate increase.
Talking to a mortgage broker can really help in this situation as they can go through the options with you and help you look at whether it's worth the cost.
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