Fixed rate fee

Hi all,

Just had an offer accepted on my first home and have been asked by my mortgage broker whether I want to pay a fee ($700) to lock in a fixed rate or I can leave it and accept whatever rate the bank is offering come settlement.

I'm going with bankwest and they recently changed their 3 year fixed rate from 2.07 to 2.79%, so my thinking is just to avoid locking in the rate and accepting the chance it rises before settlement since rates recently just rose so it seems unlikely they'll rise again.

Also my settlement is likely to happen in about 4-6 weeks (so I've been told)

I'm curious to know what others think, would you pay the fee? I'm brand new to this so a little confused.

 

In this current climate it is a no brainer to pay the $700 and rate lock. Do the math how much would a 0.1-0.2 bp rise in fixed rates raise your monthly repayments over the fixed period compared to the $700 you save now.

 

Westpac have upped fixed rates 3 times this month. Of course where a lender has already upped rates the upside risk likely reduces that further increases may occur.

Most problems are mathematical predictions.
Lets assume some numbers to see how the $700 "may" relate to benefit. Lets say you are borrowing $500,000 and the rate is 2.79 and could rise to 2.99%. And the loan is a 3 year fixed rate. Total interest (crudely) at 2.79% is $42,624. At 2.99% it is $45,710. The $700 saves $3K. You may break even at 2.79% + .05 = $2.84%.... So do you think the rate for that term could be 2.84% or more in 6 weeks ?

Recalculate for your actual situation

 

If you've got a choice, better to go with Macquarie or Adelaide. They lock the rate in for free and if rates go down, you'll get the cheaper rate (some lenders maintain the locked rate even if it drops before settlement).

 

Thanks for the advice, unfortunately I'm forced to go with bankwest because they're the only bank which will lend me as much as I'm after