2 Comments 2 Commentsby Jenny Ruth
Paul Fuller, national Mortgage Broker of the Year 2011 winner and who is part of the Prosper Group, says the decision whether to fix or float ones mortgage isn't just a matter of looking at what's happening in financial markets.
"It's about understanding more about your clients, what their goals and aspirations are and what their stage in life is, how many kids to they have," Fuller says.
"Can they afford interest rates to rise? Are they down to one income?"
Fuller says rather than quoting percentages to his clients, he works it out in dollar terms. Such as, if a client decides to fix for two years, it will cost them X more dollars than the current floating rate or if they stay on floating rates and the Reserve Bank starts raising interest rates, it will add X dollars to their interest rate bill.
"It brings it back to reality. It's very hard to understand what 0.5% means," Fuller says.
For many of his clients, certainty about their mortgage payments is very important.
Somewhat more than 50% of the mortgages he's arranged recently have been at fixed rates but mostly for between one year and 18 months. "Very few people are interested in anything longer than the two-year rate," he says.
Bruce Patten at LoanMarket, who was the first runner-up for this year's award and last year's national winner, says it comes down to clients' individual circumstances for him too.
For example, he's just fixed a mortgage for five years for a couple who have three children under five, the husband working full time and the wife part time.
The couple had just come off a 7.65% fixed-rate so re-fixing for five years at 7.35% looked attractive and they know they can afford it until the wife can return to full time work, Patten says.
But with other clients who don't have any affordability issues, he's encouraging them to sit on floating while reducing the size of the mortgage by as much as they can afford.
Only about a third of his clients are currently on fixed-rate mortgages. "A lot of people are just taking the cheapest option which is to stay on floating," Patten says. "Most people at the moment are prepared to take the gamble."
John Bolton at Squirrel Financial Solutions, who was this year's second runner-up, says while most of his clients are taking shorter term options, particularly since he can sometimes get six-month fixed rates below floating rates.
"Often the rates are quite different from what's advertised. We're managing to get quite large floating rate discounts at the moment," Bolton says.
He estimates nearly half his clients are on fixed rates currently and often he'll recommend a split between floating and fixing. "A lot of our clients don't want the stress of having to worry about their rates every second day."
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