Forward fixing can be a useful strategy for borrowers who believe interest rates are heading higher. With markets already pricing in future OCR increases, understanding how forward fixing works could help provide greater certainty around your mortgage repayments.
What Is Forward Fixing?
Forward fixing, sometimes referred to as a rate lock, allows borrowers to secure a fixed interest rate before their current fixed term expires.
For example, if your mortgage is due to roll off in 60 days and you believe interest rates may be higher by then, you may be able to lock in today’s rate for your next fixed term rather than waiting until your existing rate expires.
According to Mike, most banks offer some form of forward fixing, although the timeframes vary. Some banks allow rate locks 30 days in advance, while others allow 45 or 60 days. In some cases, borrowers may be able to pay a fee to secure a rate even earlier.
For commercial lending, some borrowers may be able to secure funding up to 12 months in advance, providing significantly more certainty around future borrowing costs.
Why Forward Fixing Is Becoming More Relevant
Forward fixing tends to become more attractive when interest rates are expected to rise.
The markets have already priced in future OCR increases, which means many borrowers with fixed rates expiring later in the year could face higher mortgage costs if they wait until their fixed term ends.
During the recent period of falling interest rates, many borrowers delayed refixing to try and secure lower rates. In some cases, borrowers even allowed loans to sit on floating rates while waiting for rates to fall further.
However, according to Mike, the market has now shifted into a different part of the interest rate cycle. As a result, borrowers may want to start reviewing their options earlier rather than waiting until the last minute.
When Should You Review Your Mortgage?
Mike explains that his team typically begins contacting clients around 60 days before a fixed rate expires.
This allows enough time to assess available rates, compare options, and determine whether forward fixing may be appropriate.
For borrowers managing their own lending, Mike recommends noting when fixed terms expire and setting reminders well in advance.
Rather than relying on banks to make contact, borrowers should proactively review their lending and understand when they become eligible to lock in a future rate.
What Are The Risks?
While forward fixing can provide certainty, it is important to understand the terms and conditions attached to any rate lock.
Depending on the lender, borrowers may face fees if they do not utilise the funding they have locked in. Some banks may also charge non-utilisation fees or impose costs if a borrower breaks the arrangement before the fixed term begins.
The rules differ between lenders, making it important to understand the specific conditions that apply before committing to a forward-fixed rate.
Key Takeaways
- Forward fixing allows borrowers to lock in a future interest rate before their current fixed term expires.
- Most banks offer some form of rate lock, although timeframes vary between lenders.
- Forward fixing can be useful when interest rates are expected to rise.
- Many mortgage advisers begin reviewing options around 60 days before a fixed rate expires.
- Borrowers should not rely solely on banks to remind them when rates are rolling off.
- Different lenders have different fees, conditions, and eligibility requirements.
- Commercial borrowers may be able to secure funding significantly further in advance than residential borrowers.
- Understanding the terms of a rate lock is important before committing to a future interest rate.
Next Steps
If your fixed rate is rolling off in the next few months, speak with the Lighthouse Mortgages team to understand whether forward fixing could be appropriate for your situation and help you plan ahead.
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Disclaimer:
The information in this article is general information only, is provided free of charge and does not constitute professional advice. We try to keep the information up to date. However, to the fullest extent permitted by law, we disclaim all warranties, express or implied, in relation to this article – including (without limitation) warranties as to accuracy, completeness and fitness for any particular purpose. Please seek independent advice before acting on any information in this article.
