Hi guys,
I’m here to learn about property invesment so I have many things that I have not understood fully. I have a question regarding the interest rate change. Is there any limit for interest rate change in the loan contract with the banks or lenders? It seems that investors with dozens or hundreds of properties need some protection against the rise of interest rate otherwise they will find it difficult to pay the extra interest fee.
Thankx for sharing the experience.
A limit? You could always go a fixed rate loan for x many years.
That would certainly limit interest rate rises.Thankx voigtstr. But why many investors said they need to create room for interest rate rise in their cash on cash return %? Is that becoz they choose the variable interest rate?
Originally posted by For-Freedom:Thankx voigtstr. But why many investors said they need to create room for interest rate rise in their cash on cash return %? Is that becoz they choose the variable interest rate?
Yes
The banks will try to maintain a competitive rate so your only concern are RBA rises. The banks won’t jack the rate up just to make money from you!
Of course if you are very concerned then fixing may be a viable option. Having said that 80% of my investors choose IO Variable as part of a professionals lending package.
Best of luck,
Simon
Simon Macks
Residential and Commercial Finance Broker
***NODOC @ 7.15% to 70% LVR***
[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.
Thankx Simon, I do concern about the rise of interest rate.
I just read that fixed rate is only allowed for a shorter peiod of time
from 1-5 yrs and the longer the priod, the higher rate I need to pay.
So the only concern for a variable interest rate is the RBA. So is
10.4% a safe cash on cash return %? How or What elements that
make the RBA decides to raise or low down the rate?
Sorry for asking u guys too much.
Have a nice day.
I know of only one lender that will limit the interest rate that is through keystart, think its called the green scheme or something, however, this is only through regulated (owner occupied)loan purchases.
even though this is a IP query, thought it would be good to keep in the back of your mind.
Definitly fixing the rate is what most investors like, piece of mind basically, dont have to worry about interest rates/increase payments etc etc.
Joshua McEwen
Finance Broker – WAhttp://www.prestigeloans.com.au
Brokers Lic 1297
Licensee Brett ChristieHi FF,
The RBA sets the cash interest rate based on many economic factors. One of the key factors is inflation. The RBA tries not to let the inflation rate creep too much over 3%. If this happens they have to put the brakes on spending and the classic way to do that is to raise interest rates.
The most recent figures show that homebuyers and investors are spending more than they did in the boom time of 2003 and the inflation rate is on the way up. If this continues I believe the RBA will be forced to do another rate rise soon
It won’t effect me much at the moment because 75% of my mortgages are fixed for about another 3 years on Interest only. It will be interesting to see what the decision from the RBA is the the 1st of August.
Todd Burns
http://www.freepropertyhelp.com.auHi FF,
You ask if 10.4% is a “safe” return.
When you calculate your return, the 10.4% “rule” is a great place to start, but you really need to follow that up by breaking it down to specific costs. One of the costs needs to be the interest you pay on the property.
When people say the “create room for interest rate changes”, they are most likely using a figure higher than the “current” rate in their calculations. If you calculate the deal based on a higher figure, your actual returns will be higher unless/until the interest rate reaches your figure.
For example, if you use a current interest rate of say 6.95% for your calculations, your figures will change when interest rates change. If you add a “buffer” into your figures of say 1% and use an interest rate of 7.95%, you have 4 RBA increases before your calculations start getting challenged.
As the others have said, fixing the rate for a period of time will protect you from changes, although it’s only for part of the life of a loan. Don’t forget, too, that the banks are there to make a profit. They aren’t offering fixed rates to be nice to you or me, they’re doing it because they believe they can make more money that way. They do it either because they think their variable rate will be less, or because they don’t think you’d do business with them if they didn’t let you fix it.
And remember, less than 30 years ago, interest rates we WELL into double figures! [sick3] Whether they will go that high again is definitely another topic in itself, but I reckon it’s pretty unlikely in the next year or so.
Regards,
Craig.
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Ask me about Joint Ventures earning 15+% COCR.Hi snow kiwi,
I have a better understanding of interest rate now. Thankx everyone for helping me. I have a question regarding the relationship between interest rate and the booming cycle. of property. Can we predict the interest rate by looking at the booming cycle or not? I want to make this a new topic, but let see how everyone think first .
Best regards,
Viet.
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