Aditya Asawa is a General Manager at Australand Property Group, a diversified property company specialising in residential, commercial and industrial real estate. In a q&a with CANSTAR Aditya explains why he chose a combination of fixed and variable mortgages.
Q: It can be tricky to decide whether to fix your mortgage or stay on variable rates. What factors did you consider when making the decision?
We considered a number of factors including:
1. The outlook for variable rates
2. The ability of our household budget to absorb changes to variable rates
3. The excess savings we could generate over the fixed rate period which we could use to repay our debt (most fixed loans have a limited amount you can repay)
4. The amount of debt we had outstanding at the time
5. The timeframe over which we wanted to fix and the different fixed rates on offer over those different timeframes (eg 2 year vs 5 year fixed rate)
Q: Did you get advice from anyone or did you make the decision yourself?
We didn?t really get advice in a formal sense. We discussed the concepts between ourselves, did some reading to form a view on where variable rates might go, conducted some basic spreadsheet analysis and came to a considered view ourselves.
Q: What did you ultimately decide to do?
We had two loans – one against our principal place of residence (PPOR), the other against our investment property. We knew we did not want to fix all of our debt, as we wanted to repay our debt over time and having all of our debt fixed would have meant we could only repay a maximum amount per year without incurring “break costs”. We would have had to find another home for our additional savings until the fixed interest term was over. So we decided to fix our investment property loan, to provide some certainty over our debt costs but left the PPOR loan variable so we could pay this off over time.
Q: In retrospect, have you been happy with the decision?
The strategy overall has been fairly neutral from a financial perspective. We were ahead relative to variable rates for the first year of the fixed period and then behind for the final year. However, there were other benefits in addition to the pure dollars involved:
1. It did give us security knowing we could budget with a degree of certainty
2. Our PPOR debt benefited as interest rates declined over the fixed rate period, so we did get some financial benefits in remaining exposed to variable rates
3. We were able to put our savings over the period against our PPOR debt which gave us “tax free” earnings which we would not otherwise have been able to do if we had fixed all of our debt
All in all, we are fairly happy with the decision to take a diversified exposure to fixed and variable rates.
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