There is much debate going on around mortgage markets and indeed, in the homes of heavily-mortgaged families. Everyone with a mortgage needs to consider the impact of rising interest rates not only on the impact on the family finances but from the perspective of managing the loan in a sensible fashion. Some will suggest that now is the right time to fix an interest rate.

When is the right time to right time to fix a loan? There are always lessons to be learned when interest rates move up or down sharply.

Borrowers who have borrowed to the limit of their capacity – and this is more often the case than not where it is a first home buyer – can get into serious difficulty when interest rates move up sharply. This is exactly what happened in recent years. Here we saw a period between 2000 and 2003 when rates were quite low and loans were readily available. Then they increased by more than three percentage points. Lately they fell to record low levels; now they are on the rise.

There are no hard and fast rules for fixed rate home loans- just common sense rules. There are some essential factors to consider when considering a fixed rate loan including that fixed rate loans are ideal for investors who want certainty about how much their repayments are, and that fixed rate loans are ideal when interest rates are historically low.

In the case of an investor who is looking for a return on their investment, the certainty of a fixed rate loan is desirable. Think about it: you are borrowing hundreds of thousands of dollars in an environment where interest rates have moved up more than 3.5 percentage points in some cases. On a standard variable loan (non fixed rate) of $400,000, that could mean a difference of $14,000 a year. That could be enough to create serious cash flow issues and may in fact force the investor to sell. You don’t want that situation to occur.

Investors are in a different category to home buyers. Investors are ideal users of fixed rate loans especially at a time of low interest rates especially highly geared buyers who need to protect themselves from rate rises. Investors like the certainty of outgoings as they are looking at the retune on investment and the total performance of the investment.

As a borrower you will do your sums very carefully or work closely with a mortgage broker who will assist you. Your capacity to service a loan is one of the most important considerations going forward. If your capacity is right up against its limits, you may be advised to take out a fixed rate loan.

Even if you feel comfortable at current rates a fixed rate loan gives you certainty of the repayment amount. If you can’t for example tolerate a three percentage point rise in rates then you need to consider a fixed rate home loan. Alternatively you need a buffer in your income against such rises: they can happen very, very quickly.

It is standard to fix a loan for either three or five years, but 10-year fixed rate loans are also available. You need to take care in doing your serviceability calculations and have a buffer against income. This is good opportunity to get some input from a mortgage broker.

Author Bio: Contact us to speak to a Mortgage Broker today for advice on your next home loan at http://www.moneynet.com.au/ through our online form http://www.moneynet.com.au/

Category: Finances
Keywords: mortgage broker, mortgage brokers