I’ve been in this industry for 30 years and it’s my belief that there are always opportunities in the market, no matter whether it’s up or down. But every now and then, the really phenomenal ones come along and I hate to see people missing out because they haven’t taken time to consider them.
We all know there are historically low interest rates, but have you really thought about how you can take advantage of this? Don’t wait until rates are back up around 7% or 8% to realise the amazing benefits of what’s on offer today.
I can’t emphasis this enough. This is the time to take advantage of record low rates to acquire assets for your future. Don’t let yourself fall victim to the perennial “If only I’d bought then”. Assets are the key to long term financial wealth and today’s low rates make acquisition so much easier.
Plus, with rents as strong as they are, it is also very easy to achieve neutral or even positive gearing with an investment property because rates are so low. In other words, you can buy a property and have it cost you very little a week to hold on today’s rates. Got a spare $50 a week? That might be all you need to maintain an investment property in today’s low rate climate.
Generally, the long term average home loan rate is 6-8%. Today, you can easily get a variable rate on a professional package and/or a fixed rate that is at or under 5%. There’s also longer packages that are great value – for example, you can lock in for five years for well under 6%.
When I’ve borrowed money to buy property, I’ve often chosen a variable rate loan. Most of the time the variable rate has been below the fixed rate so I was comfortable with that. But today things are different.
Depending on the lender, fixed rates are generally on par or below the variable rate; and coupled with this, we have the likelihood of variable rates rising later in 2014. These two factors make fixing a very viable option right now and I think 3-5 years would be the best timeframe to consider.
Of all the factors impacting your ability to buy a property, interest rates are the real key and they virtually couldn’t be better right now. But they won’t stay like this forever – in fact, some banks have already raised their 3-year rates, so I encourage you to take time to consider this.
Buying investment properties is a fantastic way of achieving long term financial wealth. As long as you make good decisions about the type, quality and location of your investment property, real estate is a no-brainer for wealth creation.
The other thing about low interest rates is you don’t have to buy to benefit from them. Existing borrowers could save thousands of dollars simply by refinancing. For those who are buying for investment, strong rental yields make it pretty easy to get close to a neutral or positively-geared investment from day one, given today’s mortgage rates are at or below average rental yields.
Many Aussies are getting in on the act. Latest stats from major broker, AFG, show more new borrowers are choosing fixed rates (24.9% of new loans in Dec 2013 compared to 16.3% in Jan 2013). However, refinancing rates remain steady and this makes me think many existing borrowers are missing out because they don’t realise how much money they could save by refinancing.
In terms of fixing, the greatest benefits are the security of knowing what your repayments will be long-term; the ability to make extra repayments (check with your bank); and the opportunity to receive a discounted fixed rate on a professional package.
The cons are you are locked in for the term of the loan, so selling is usually out of the question; and the bank will usually limit how much spare cash you can re-pay in a year.
If you’re not sure what to do, you can have the best of both worlds and do a split fixed/variable loan but then are you really getting the maximum benefit of today’s low rates? Do the maths and decide what works best for you.
If you’d like some help, find a mortgage broker in your area who is a member of the Mortgage & Finance Association of Australia at www.mfaa.com.au.
Or contact our very own Oxygen Home Loans, at 1300 855 699