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Debt decision: What your clients need to know about fixed v variable

Confused homebuyers are relying on brokers to offer words of wisdom when it comes to taking on a fixed or variable home loan - so what's the best advice?  We speak to BELEN LOPEZ DENIS of Citibank and NICOLE CANNON of Pink Finance for their thoughts on what clients need to know in these market conditions.

Video transcript below:

Donna Sawyer, Australian Broker TV
Donna Sawyer:
 To fix or not to fix, that’s the question home buyers are asking right now and it’s up to brokers to solve their conundrum.  Belen Lopez Denis, Head of Mortgage Strategy at Citibank says brokers can cut through the confusion by taking an interest in their client’s underlying needs.  

Belen Lopez Denis, Citibank
Belen Lopez Denis:  Obviously there is not quite a black and white for a lot of these customers and they sometimes are in between these two worlds, in between having the certainty and also having the flexibility in their home loan.  And that is why the broker actually adds significant value and needs to be really be looking at what is the underlying the needs of that customer.  How much is there risk adversity of that customer versus a) against variable rate changes and which is their most likely mix, between fixed and variable loans, that is going to best suit the needs of that particular customer.
Nicole Cannon, Pink Finance
Nicole Cannon:  Clients are really interested in the low fixed rates at the moment.  Definitely with most of my clients who are fixing, it’s only a portion of the loan, so you have 50% or 40%, so then they can have a proportion of it variable and then any extra repayments they can make, they can focus on that variable portion so there are no penalties.
Donna Sawyer:  Nicole Cannon of Pink Finance says, well brokers aren’t fortune tellers when it comes to what the RBA will do next.  They can give their clients a range of options so they can make an informed choice.
Nicole Cannon:  Clients want this great big crystal ball as to really what is going to happen and we still really don’t know exactly what is going to happen and so education is the key.  And giving them situations and scenarios based on the different factors.  So if you had all your loan as variable, this is what the repayments would be, if all your loan was fixed, these are what your payments would be and the pros and cons of both.  So they maybe meeting halfway of having a portion of it fixed and a portion of it variable.  So again it comes down to the individual needs of every single client.
Belen Lopez Denis:  Something that brokers need to remember every time they talk to customers and must advise them is that if they are actually looking for certainty, their most optimal solution would be a fixed rate loan.  But it actually comes with some constraints, things like you cannot make changes in the home loan during the life of that fixed rate period and that fixed rate can actually change at any point in time between submission and settlement.  So that’s the importance of having that rate lock, the rate lock provides that certainty that once you actually see this is the competitive or very appealing fixed rate that I want to apply for, it is locked for a period of time.  We at Citibank offer this feature for free.  Very few lenders offer this feature and they charge for that.
Donna Sawyer:  But Belen Lopez Denis’s Citibank has a word of warning to brokers.  Interest rates maybe about to bottom out to make way for a new cycle.
Belen Lopez Denis:  At this point in time the variable rates, we expect that might come slightly down, but we are close to the bottom of the cycle.  What is coming next is going to be rates going up and that’s something that consumers and brokers need to be very very aware at this point in time.
Donna Sawyer:  This is Donna Sawyer reporting for Australian Broker TV.