Rate lock Q

Discussion in 'Loans & Mortgage Brokers' started by First time Investor, 7th Feb, 2018.

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  1. First time Investor

    First time Investor Active Member

    Joined:
    19th Dec, 2017
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    Location:
    Sydney
    Howdy,

    Any thoughts on this rate lock scenario:

    3-year fixed IP loan 3.99% with CBA

    $750 to rate lock

    90 day settlement period starting three days ago. I was originally going to pay it but have backed off a little considering fundamentals of economy seem weakish and money markets are guessing first rate increase will be late 18, early 19 now.

    Thoughts?
     
  2. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    03 9877 3000
    Fixed rates have very little to do with the RBA announcements in this context. There is an economic relationship, but they are different sources of money.

    Fixed rates have gone up and down multiple times in the last few years and there's been no movement from the RBA. Some lenders have put their rates up at the same time as others have put theirs down. It can be quite unpredictable.

    There are some 3 year IP fixed rates at 4.5% with other lenders right now. It appears the CBA has simply gotten their hands on some cheap money, or they've got a stategic reason for pricing this low (and it is low). These can end at any time and there will be no warning of it at all.

    You can take several perspectives on the value of the $750 fee...

    * If your loan is $250k or more, rates only need to go up by 0.1% for the fee to be worthwhile.
    * Are you willing to gamble $750 on the fact that the fixed rate may or may not change in the next 90 days?
    * Are you willing to pay $750 to be confident that you'll be paying 3.99% on an investment loan for the next 3 years.

    In the past year I've had clients that opted for a rate lock and it wasn't necessary. I've also had clients that decided not to take it and got burned.
     
  3. Redom

    Redom Mortgage Broker Business Plus Member

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    Usually CBA offer discounts of relatively high(ish) headline fixed rates. This is a little different to other lenders, who have adjusted their fixed rates a little more regularly and usually provide headline rates across the board. CBA have been using discounting to move around on the end rate they want to provide consumers.

    Why does that matter? Your 3.99% fixed rate isn't actually their 3 year headline fixed rate, its worked of a discount thats been provided to you. It just means that its not a promo rate offering thats in for a short time and likely to rise again a bit later - i.e. this rate/product is marginally less likely than others to have headline fixed rate changes.
     
  4. First time Investor

    First time Investor Active Member

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    Sydney
    Hmm thanks guys. Food for thought. As it's a 90 day settlement, I think I'll just pay it and be done.
     
  5. Lucky Lad

    Lucky Lad Active Member

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    20th Jan, 2018
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    Paradise
    How much is the loan amount?
     
  6. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Gold Coast (Australia Wide)
    SANF
     

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