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What Is a 'Rate Lock' Mortgage?

Published: 10 September 2025

Have you ever applied for a fixed rate home loan when interest rates looked favourable, only to find the rate had gone up by the time your loan was settled?

This happens more often than you think. That’s because there’s often a gap between when you apply for your loan and the actual settlement date, and banks use the rate on the day of settlement — not the application day — to set your final fixed interest rate.

That’s where a Rate Lock option can really save you.

1. What is a Rate Lock?

A Rate Lock is an optional add-on when applying for a fixed-rate mortgage. It allows you to secure the interest rate at the time of application, even if the rate increases before settlement.

📌 Example:

John applies for a fixed rate home loan at 2% with Bank A. By the time settlement comes around, the fixed rate could have increased to 2.3% or dropped to 1.7%.

  • Without a rate lock, John will have to accept the new rate on settlement day — 2.3% in this case.
  • With a rate lock:
    • If rates go up, John keeps the original 2%.
    • If rates go down, many lenders allow John to take the lower rate instead.

So, a Rate Lock gives you peace of mind, especially in a rising rate environment.

2. How Long Can You Lock the Rate?

Rate lock periods typically range from 30, 45, 60, or even 90 days, depending on the lender.

But when does the lock start?

This varies by bank:

  • Some start the lock from the application date
  • Others from the rate lock fee payment date
  • Or from the loan approval date

This is why it’s important to check your lender’s specific policy.

3. Is There a Cost for Rate Lock?

Yes, most lenders charge a rate lock fee.

This may be:

  • A fixed fee, e.g. $450, or
  • A percentage of your loan amount, e.g. 0.15%

Some lenders offer a rate lock for free, although this is not usually the main factor when choosing a home loan — but it’s always nice to save where you can!

4. Why Choose a Rate Lock?

It depends on your personal situation, but a rate lock is especially valuable for borrowers choosing a long-term fixed rate.

For example:

  • Borrower A chooses a 1-year fixed rate
  • Borrower B chooses a 5-year fixed rate

If rates go up by 0.1%, Borrower A only pays more for 1 year, but Borrower B will be stuck with the higher cost for 5 years — that’s a significant difference!

▲ In a rising interest rate market, a rate lock gives you protection and budget certainty.

And right now, Australian banks have started increasing fixed rates — even though the RBA hasn’t raised the cash rate, banks can independently adjust their fixed rate offers. That’s why locking in a low fixed rate now can save you thousands in the long run.

✅ Pro Tips

  • If you choose to rate lock, try to select the longest rate lock period possible to ensure coverage until settlement.
  • If you’re unsure if your lock period is long enough, consult a professional mortgage broker. They can help you adjust or extend the lock if needed.