Rate Locks Explained — Protecting Your Rate Before Settlement

When you get approved for a fixed rate home loan, there is typically a gap between approval and settlement — sometimes several weeks, sometimes months. During that time, fixed rates can change. A rate lock protects you from rate rises during that gap.

The Rate Lock Problem

You apply for a home loan and get approved at a fixed rate of 5.89%. Settlement is 90 days away. In those 90 days, a bank funding cost move, an RBA decision, or market repricing pushes the lender's 3-year fixed rate to 6.20%. Without a rate lock, your loan settles at 6.20%. With a rate lock, it settles at 5.89%.

Rate lock fees are typically charged as a percentage of the loan amount (commonly 0.10–0.25%) or as a flat fee (commonly $500–$1,000). They are paid upfront and are non-refundable.

When Rate Locks Apply

Rate locks only apply to fixed rate loans — there is nothing to lock on a variable rate loan because the rate moves by definition. If you are purchasing a property with a long settlement, building a new home (where construction may take 6–12 months before you draw down), or refinancing but cannot settle quickly, a rate lock is worth considering.

Rate Lock Period — Typically 60–90 Days

Most lenders offer rate locks for 60 or 90 days. Some extend to 120 days for construction loans or off-the-plan purchases. If your settlement extends beyond the rate lock period, you either pay for a rate lock extension (if the lender offers it) or accept the prevailing rate at settlement.

Is a Rate Lock Worth Paying?

The decision depends on your view of rate movements and the cost of the lock:

• If fixed rates are rising: a rate lock protects a valuable position — likely worth the fee
• If fixed rates are stable or falling: the rate lock fee is a cost with no benefit — you would have settled at the same or lower rate anyway
• The rate lock breakeven is: (lock fee / loan amount) as an increase in rate. On a $600,000 loan with a 0.15% rate lock fee ($900), you need the fixed rate to rise by at least 0.15% before the lock saves you money in net present value terms.

Rate Lock vs Rate Drop

Rate locks protect against increases but do not typically allow you to benefit from rate drops. If fixed rates fall 0.2% during your settlement period and you have a rate lock, you still settle at your locked rate. Some lenders offer a "float-down" provision that allows you to capture a rate decrease, but this is uncommon and usually adds to the fee.

Rate Lock for Off-the-Plan Purchases

Off-the-plan purchases commonly have settlement periods of 12–24 months. Standard rate lock periods of 90 days do not cover this. Most lenders will not offer a rate lock for off-the-plan settlements at the time of contract signing. Instead, you re-apply for finance 60–90 days before the expected settlement date and lock at that point if you choose. This is a genuine risk of off-the-plan purchases — you do not know what rate environment will exist at settlement.

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