Mortgage brokers dealing with a surge of interest in fixed mortgage rates may need to factor rate lock fees more explicitly into conversations with clients, as new analysis highlights large variations between lenders.
In a market where first-home buyers and property investors are trying to “beat” possible mortgage rate hikes, lock fees can materially change borrowing costs and repayments. Canstar data show 12 lenders have hiked more than 260 fixed mortgage rates ahead of next week’s RBA meeting, adding to the urgency for borrowers weighing rate lock decisions.
Money.com.au’s review of major and smaller lenders found some banks are charging up to 0.20% of the loan size to lock in a fixed rate, while a handful offer flat fees or no fee at all. On a $1 million loan, a 0.20% lock fee equates to $2,000, which can quickly eat into any savings from fixing, particularly beyond the first year of a term, news.com.au reported.
Bank of Sydney emerged as the most expensive option in the analysis, charging 0.20% of the loan amount. A cluster of lenders including UniBank, Teachers Mutual Bank, People’s Choice, NAB, Heritage Bank, AMP, and Beyond Bank charge 0.15%, or $1,500 on a $1 million mortgage.
At the other end of the spectrum, Macquarie Bank and Bendigo Bank do not charge any rate lock fee. Others, such as MOVE Bank, Homestar, UBank, Queensland Country Bank, and Laboratories Credit Union, apply flat fees in the $375 to $500 range, which may be cheaper than percentage-based pricing on larger loans.
Money.com.au mortgage expert Nick Burgess said many borrowers still focus on the headline fixed rate and are surprised by lock charges.
“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 calculated,” Burgess said. “They don’t realise these fees are structured differently depending on the lender.”
He said the decision to pay a lock fee should be weighed against the client’s new fixed rate, expected savings versus staying variable and how long they plan to hold the loan.
“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,” Burgess said.
For brokers, clearly outlining how rate lock fees work, comparing flat and percentage-based options, and stress-testing borrowing capacity with and without the fee can help clients avoid bill shock while still managing interest rate risk.
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