Top things to consider before fixing interest rates

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    It seems fixed rates have just become even lower. UBank’s latest owner-occupier offering is a mere 1.75% per annum for three years – a significant saving for a variable rate borrower looking to fix. But, before borrowers sign themselves into a fixed term contract, brokers play a pivotal role in educating them around whether or not the reduced rate will actually benefit their wider goals and objectives. In part two of our look at the low fixed rate environment, MPA spoke with Specialist Finance Group aggregation manager Blake Buchanan, co-founder and CEO of Lendi David Hyman, and director and founder of Australia’s top brokerage 1st Street Financial Jeremy Fisher about the top things brokers should consider when helping their clients decide whether to fix interest rates.

    Blake Buchanan, aggregation manager, Specialist Finance Group

    According to Blake Buchanan, while many customers are attracted to the low fixed rate offers currently in the market, a deep understanding of the client’s needs and objectives comes first and foremost.

    Read more: Digital bank sets record-low mortgage rate

    “Brokers have an obligation to educate their customers about not only the product that they eventually choose but also the products they might not choose,” he said. “The combination of a complete understanding of circumstances combined with a thorough understanding of how products work for the end consumer will see excellent product selection.”

    He said brokers should look out for things such as limited extra repayments per annum, fixed rate break costs and lack of features, such as offset accounts, when helping their clients decide whether to take out a fixed rate loan.

    “Interest rate market timings are also an important consideration,” he said, recalling the number of borrowers who fixed rates at 8% or higher in the lead up to the GFC.

    Read more: Is now the right time to fix interest rates?

    “The variable rates quickly tumbled to about half, but customers were often trapped paying significantly higher rates,” he said. “Often, the only option to get a better rate was having to refinance with a large break fee attached. This highlights the importance for borrowers to talk to brokers and gain insights, perspective and education before making what could be costly decisions.”

    David Hyman, CEO and co-founder, Lendi

    David Hyman agrees that a deep understanding of the client’s goals and objectives is vital before fixing rates. But at a very simplistic level, the main thing to consider is whether the client is planning on holding the property for the long term – a consideration that extends to property investors as well as owner-occupiers.

    “If you’re an owner occupier and you’re currently on a variable rate in the low to mid twos and you’re not looking to move for the next few years, fixing could be a very sensible option,” he said. “Same thing for investors, if you are an investor that’s not looking to sell that property for the next two or three years, a two or three-year fixed rate could be a great choice.”

    Jeremy Fisher, director and founder, 1st Street Financial

    Director of Australia’s top brokerage Jeremy Fisher said there were a range of potential scenarios that brokers and their customers should consider when deciding whether or not to fix. Needing to sell the property during the fixed term is a major thing to consider, but another scenario is whether or not the borrower is likely to receive an inheritance, bonus or other lump sum that they could use to help them pay down their mortgage debt.

    “Clients will see a fixed rate and think ‘great, it’s cheaper, let’s go there’, but I think they need to understand the limitations that come with a fixed loan,” he said. “You generally can’t have an offset account and you can’t make additional repayments.

    “Do all of those things fit the client’s situation? If the answer’s ‘yes’, then absolutely it’s worth pursuing a fixed loan.”

    Read part one of our look at the low fixed rate environment

    It seems fixed rates have just become even lower. UBank’s latest owner-occupier offering is a mere 1.75% per annum for three years – a significant saving for a variable rate borrower looking to fix. But, before borrowers sign themselves into a fixed term contract, brokers play a pivotal role in educating them around whether or not the reduced rate will actually benefit their wider goals and objectives. In part two of our look at the low fixed rate environment, MPA spoke with Specialist Finance Group aggregation manager Blake Buchanan, co-founder and CEO of Lendi David Hyman, and director and founder of Australia’s top brokerage 1st Street Financial Jeremy Fisher about the top things brokers should consider when helping their clients decide whether to fix interest rates.

    Blake Buchanan, aggregation manager, Specialist Finance Group

    According to Blake Buchanan, while many customers are attracted to the low fixed rate offers currently in the market, a deep understanding of the client’s needs and objectives comes first and foremost.

    Read more: Digital bank sets record-low mortgage rate

    “Brokers have an obligation to educate their customers about not only the product that they eventually choose but also the products they might not choose,” he said. “The combination of a complete understanding of circumstances combined with a thorough understanding of how products work for the end consumer will see excellent product selection.”

    He said brokers should look out for things such as limited extra repayments per annum, fixed rate break costs and lack of features, such as offset accounts, when helping their clients decide whether to take out a fixed rate loan.

    “Interest rate market timings are also an important consideration,” he said, recalling the number of borrowers who fixed rates at 8% or higher in the lead up to the GFC.

    Read more: Is now the right time to fix interest rates?

    “The variable rates quickly tumbled to about half, but customers were often trapped paying significantly higher rates,” he said. “Often, the only option to get a better rate was having to refinance with a large break fee attached. This highlights the importance for borrowers to talk to brokers and gain insights, perspective and education before making what could be costly decisions.”

    David Hyman, CEO and co-founder, Lendi

    David Hyman agrees that a deep understanding of the client’s goals and objectives is vital before fixing rates. But at a very simplistic level, the main thing to consider is whether the client is planning on holding the property for the long term – a consideration that extends to property investors as well as owner-occupiers.

    “If you’re an owner occupier and you’re currently on a variable rate in the low to mid twos and you’re not looking to move for the next few years, fixing could be a very sensible option,” he said. “Same thing for investors, if you are an investor that’s not looking to sell that property for the next two or three years, a two or three-year fixed rate could be a great choice.”

    Jeremy Fisher, director and founder, 1st Street Financial

    Director of Australia’s top brokerage Jeremy Fisher said there were a range of potential scenarios that brokers and their customers should consider when deciding whether or not to fix. Needing to sell the property during the fixed term is a major thing to consider, but another scenario is whether or not the borrower is likely to receive an inheritance, bonus or other lump sum that they could use to help them pay down their mortgage debt.

    “Clients will see a fixed rate and think ‘great, it’s cheaper, let’s go there’, but I think they need to understand the limitations that come with a fixed loan,” he said. “You generally can’t have an offset account and you can’t make additional repayments.

    “Do all of those things fit the client’s situation? If the answer’s ‘yes’, then absolutely it’s worth pursuing a fixed loan.”

    Read part one of our look at the low fixed rate environment

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    Original Article