G’day….
Just a thought:
Sept ’03………….Int. rates….6.5%
Nov. ’03…+ .25%…..Int rates…..6.75%
Jan. ’04…+ .5%……Int Rates….7.25%
March ’04 + .25% ……………..7.50%
May ’04 + .5%……………….8.00%
July ’04 + .25% …………….8.25%
Sept ’04 + .25% ……………..8.50%
[8]Billfromoz
Interesting… I don’t think we will look back and see this has happened (there are some aggresive 50 basis point rises there, and the RBA raises EVERY time they meet from now on???)
So to me it feels like the boom has another 18-24 months potential, unless something happens in the US and they raise rates significantly.
That’s on the basis that 8.5% is the magic ‘turning point’ anyway. COuld be 9%…
Tas [
]Just a thought !
if the average loan is say $150K at 6.5% reayments are $1012
At 8.5% repayments are $1207
At 10.5% = $1416
not including any tax breaks for extra interest.
I don’t think it would break the average +ve CF investor Or would it ????
The average homeowner would screamn and the it would spell death to the Govt at the next election.
Also payclaims and inflation would go thru the roof.
No
unless something really really drastic happens then i think 8 – 8.5 would be max for 2-3 years.
any one comment on this.
any other thoughts?Hi Bill, Tas and Cobra
This is the guts of the risk .. repayments flipping the positives over to negatives, where the positive is marginal. But then, risk equals return. If the break even point averaged over your properties is 8.5%, I believe we have a while to go before we approach the danger zone.
Still “wrapping” my mind around the best approach. As per Steve’s advice, minimise the risk, maximise the return. I see it all as a balance of finding investments which may achieve some growth, where needed to downsize by selling, to fund the interest rate gap (lower refinanced capital) yet beating an opportunity cost on a cash on cash return less than those other opportunities.
Interesting to consider how one might arrive at a ratio of fixed, P&I and I/O loans. First thought is totally I/O to maximise the basic purpose of cashflow. Continual refinancing will have one-off costs each time also.
It’s a garden which requires regular tending. I have learnt that. I’m aware that one can’t hope to find a set-and-forget loan, with never ending cash return purchases. Can you guys suggest a frequency of, and how to conduct, a health check of investments. What are the red flags to look for?
I guess if we had all the answers, everyone would be doing this, yet no one would be making money.
Has anyone found the magic formula ? (Apart from Steve that is !!)
Regards to all, Phil
The average homeowner would screamn and the it would spell death to the Govt at the next election.
Also payclaims and inflation would go thru the roof.
No
unless something really really drastic happens then i think 8 – 8.5 would be max for 2-3 years.
any one comment on this.
any other thoughts?I’m inclined to agree. I have read that because of the level of personal debt people carry nowadays, even a modest increase of 2% or so above current levels would be the equivalent of the 17% rates we had during the recession.
The RBA have painted themselves into a corner. A substantial rate rise in the short-medium term will undo all the good work that went into boosting the economy, and will in all likelihood plunge us into another recession.
There are some pretty good fixed rates still available. Five years fixed from 6.29%.
Cheers,
Simon Macks
Mortgage Broker
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Hi
The other side of the interest rate story is of course the Australian dollar. As an importer I’m affected by the dollar fluctuations [curently benefitting by higher Ozzy dollar], but exporters are suffering!!! and the higher the RBA puts interest rates, the more money is attracted to Oz, pushing dollar up etc, the result is exports become less competitive – the more out of whack the balance of trade goes – and this itself tends to major economic woes. So seems to me the RBA is caught between upping rates to cool the housing sector but by doing so decreasing exports and so on. In short I dont think rates are likely to rise as you suggest –cheers
Kim
G’day…
Re Aussie $
The Aussie $ was at .8700 in 1988. Whats to say that the interest rate differential between US/Aus won’t push the Aussie up another .10 at least.
Consider : .5320 then up to .8700 by 1988( +3380)
recent bottom .4750…current top .6800 ( + 2050)
If it climbes 63% again (why not?) maybe .7750If you graph the above scenario….A$ still in downtrend even at .7750. Lower peaks and lower lows. I have seen the Aussie $ jump .03c in a day.
Can you imagine… .6800 when you go to bed…and .7100 as you have a morning cuppa?
Interest rates will do it again. We are about 40% below our long term average on interest rates.Different, this time ?
I don’t think so.Billfromoz
So seems to me the RBA is caught between upping rates to cool the housing sector but by doing so decreasing exports and so on. In short I dont think rates are likely to rise as you suggest –One also has to consider that it isn’t the RBA’s concern what may be going on in specific sectors. As long as inflation stays in check, there should be no need for interference in housing…. and the major culprit IMO are the lenders which require little if any capital to be put up by potential investors, leading to our current boom in investment lending. Sooner or later, there’s a correction, there always is.
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