The Mortgage Store, one of Sydney's leading mortgage brokerage companies, lends in excess of $25 million in new home loans and obtains approval for more than sixty home purchasers per month, with an average of $360,000 per home loan.
According to The Mortgage Store's Director, Mr Glenn Maynard, homeowners planning to fix their loan should ensure they are fully informed about the consequences.
"The decision to fix a home loan needs to consider the individual's circumstances. In the case of an owner-occupied debt, that is someone who is living in the house they are paying off, there are both advantages and disadvantages," says Glenn Maynard.
"Whilst a fixed rate may provide some security in a rising interest rate market; to fix the entire loan will usually remove the ability to make additional payments.
"At The Mortgage Store, we wouldn't recommend a client to fix their entire home loan unless they feel concerned that they may be unable to meet their loan repayments at the higher rates, or if their personal circumstances change considerably. This might be because a client is looking to change employment or start a family.
"A better option for owner-occupiers is to fix a portion of their loan, keeping some of the loan variable. This is a great 'each-way' bet. You have the security of locking in some of your loan yet you also maintain the ability to make additional payments.
"One of the best options in a rising interest rate market is to concentrate on paying off as much as possible on your home-loan. There are two advantages to this strategy. Obviously any reduction in your loan will automatically reduce your repayments. Also, if you get into the habit of repaying a greater amount on your home loan regularly, you may not receive a shock if interest rates increase."
Mr Maynard offers separate advice for investment property owners, suggesting that fixing the entire loan may be worth considering in the current interest rate market.
"Unlike owner-occupiers, a property investor may not want to pay off their investment loan as quickly as possible, especially if they still owe money on their owner-occupied property. Clients should concentrate on paying off their home first. This is because the debt is not tax deductible, whereas the interest on the investment loan is tax deductible," explains Glenn.
"The Mortgage Store often recommends a 'set and forget' policy to investment loan customers. The option of fixing makes it very easy for the investor to budget, as they know exactly what repayments are required each month.
Concerned about how interest rates will affect your home loan?
KB: Q0010
Last Updated: 26 Sep 2006
