How to Use Low Interest Rate Climate Best?

low interest rateIn an article for the website Property Update, Kevin Turner talks about a few smart tips to make the most out of the low interest rate scene prevalent in Australia. Official cash rate has come down to a record-low of 2.25%, falling by a further 25 basis points last week. The big four banks have not hesitated any from passing on the benefits in full to the customers.

Really low mortgage payments

If you watch carefully, says Turner, the average long term interest rate in the last 10 years has hovered around the 7.20% mark so investors and owner-occupiers paying something like 4.5% in terms of mortgage payments is fantastic news.

Tone down debts

The first suggestion by the writer is to pay down debt. Let your repayments be the same. Do not ask your bank to reduce the repayments (because they gladly can). This will help you with a financial buffer as and when the rates climb again. Go for a redraw facility to help withdraw the extra deposited money in an emergency situation in the future.

Create cash flow

Be either neutral or go for a positive cash flow. It should not be tough with the existing cash rate. While calculating affordability, keep the 7.21% (long term interest rate) figure in mind. It should give you a sound buffer for the time the rates rise again.

First home buyers; muscle up

First home buyers can do something about their dwindling numbers, too. It is perhaps the time they can hope to pay the least in terms of “first five years” mortgage payments, a time-zone when they feel the collective heat of principal and interest a little too much for their comfort.

You can read the original article here.

There is no predicting what the RBA has in mind. It has already defeated the forecasts made by industry pundits for long. It is only expected that low cash rates would mean frenzied borrowing activity so it is crucial that production of goods, services and commodities also keep rising to meet the level of borrowing.

There is more than good reason to believe that if the sync between two crucial components; GDP and cash rate is disturbed, the third one; inflation can raise its head. This though is not even a passing concern at the moment.

Is there a tip you can add to the basket?