Why brokers should be advising their clients to pay rate lock

Key tool for brokers in the new rate rise environment of 2022

Why brokers should be advising their clients to pay rate lock


By Mike Wood

It wouldn’t be an overstatement to say that a significant number of active brokers have never worked in an economic climate where interest rates are rising.

The Reserve Bank of Australia (RBA) has raised the cash rate in well over a decade now, the longest such streak in the world, and while it promises not to raise the basic price of cash in 2022, the major banks have pre-empted a hike by moving their interest rates.

The last three months of 2021 saw rate action across the board, with multiple rises apiece from all of the Big Four.

According to a leading Queensland brokerage, the environment of rate rises has brought back a product long ignored by the channel: rate lock.

The ability to pay a little extra to get a fixed rate at today’s rate and avoid any potential rises before settlement could make the difference of thousands of dollars for clients, says Cara Giovinazzo, founder at Borro.

“In the current climate, it’s really important to emphasise the need for rate lock to our clients,” she said. “What we’re seeing a lot of is banks making multiple rate increases, and we’re not just talking one bank going up, everyone following and that’s it.”

CBA, for example, made four increases in a two month period – that’s not like how it used to be, when all the banks would move and it’d be over and done with. We’re seeing the ripple effect.

“There is rate lock, which customers can take, but over the last two years when we have seen rates declining, so the mentality has been that you can use it but as rates were going down, there was no real reason for anyone to advise their clients to pay extra fees.

“It can be as much as an extra thousand dollars to lock in a rate. Now, that is shifting to a place where we urge every client to take it out. We’re letting them know what the risks are if they don’t and potentially how much extra it could cost them over the life of a loan or over the fixed period.

“Some brokers have clued in now, but there are a lot that are still not recommending it. At Borro, we have been on the front foot: we’ve had compliance documents drawn up around rate lock that have been shared with nearly 100 brokers that highlight what rate lock is and what can happen if you don’t have it.

“We’ve had to take a step further now and begin implementing that clients put it in writing to us if they choose not to accept rate lock.”

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