Puzzle Finance Blog

Interest rate cut smarts pays dividends

INTEREST rate cuts are a welcome relief for investors - just make sure that extra money doesn't go to waste.

Most people with a mortgage always have their fingers crossed for an interest-rate cut.

However, hoping and wishing for a rate cut is one thing.

Sensibly using the extra cash freed up by the cut is another.

Borrowers shouldn't use rate reductions as an excuse to sit tight and not shop around, because by doing so they could be missing out on even bigger savings.

Investors Club chief executive Kevin Young says property investors could already be taking advantage of the May and June cuts and prepare for another cut in September.

"How Australia's 1.7 million property investors use their newly acquired funds and manage their loans effectively could make or break their portfolios,'' Mr Young says. 

"With just half a per cent drop in interest rates, investors with an average mortgage of $400,000 will save up to $6240 per year.''

Catapult Wealth director Tony Catt says many investors use their properties as a forced savings plan.

"You should use the extra money from a rate cut to pay off your loan faster,'' Mr Catt says.

"If you leave the repayments as they are you actually increase your equity faster.''

However, if investors also have a mortgage on their place of residence, that's the first place to pay off as interest on investment properties is a tax deduction.

Another option is preparing for a rainy day, he says.

"Use opportunities like this to get ahead of repayments or give yourself some room to move in case tenants leave or you need to make repairs.''

Mr Young says a drop in interest rates can bring confidence back to the market so investors should move quickly but research thoroughly.

"This makes it a great time to buy before people start coming back to the market,'' Mr Young says.

"But be smart. Ensure your pick of the market will yield the best value in the long term.''

Property also is appealing for superannuation investment, Mr Young says.

"Residential property investment has achieved higher returns than shares measured in both 10-year and 20-year periods up to December 31 last year,'' he says.

"Residential growth rates were 8 per cent per annum and 9 per cent per annum respectively while Australian shares returned only 6.1 per cent per annum and 8.7 per cent per annum.''

By switching to a low-rate loan, borrowers with a $300,000 mortgage could save over $230 each month in repayments on a 0.25 percent reduction from the Reserve Bank, according to RateCity.

By maintaining higher repayments borrowers could save almost $80,000 of interest over 25 years and be mortgage-free more than five years sooner. To work out how much you could potentially save by switching or simply by increasing your repayments try using a mortgage calculator.

Experts agree investors should always seek independent advice.

Posted by Amy Noonan - The Advertiser on 18th August, 2012 | Comments | Trackbacks

Bookmark and Share

The trackback URL for this page is http://www.puzzlefinance.com.au/trackback?post=26272056


There are no trackbacks for this post


There are no comments for this post

Post a Comment

HTML is not allowed in comments, http://... will be automatically linked.

Name (required):

Email Address (not displayed):

Comment (required):

To help prevent spam, please enter the word axle here:

Puzzle Finance Blog

About Puzzle Finance


September 2017
August 2017
July 2017
June 2017
May 2017
March 2017
February 2017
January 2017
December 2016
November 2016
October 2016
July 2016
June 2016
May 2016
April 2016
March 2016
February 2016
January 2016
December 2015
November 2015
October 2015
September 2015
August 2015
July 2015
June 2015
May 2015
April 2015
March 2015
February 2015
January 2015
December 2014
November 2014
October 2014
September 2014
August 2014
July 2014
June 2014
May 2014
April 2014
March 2014
February 2014
January 2014
December 2013
November 2013
October 2013
September 2013
August 2013
July 2013
June 2013
May 2013
April 2013
March 2013
February 2013
January 2013
December 2012
November 2012
October 2012
September 2012
August 2012
July 2012
June 2012
May 2012
April 2012
March 2012
February 2012
January 2012
December 2011
November 2011
October 2011
September 2011
August 2011
July 2011
June 2011
May 2011
April 2011
March 2011
February 2011
January 2011
December 2010
November 2010
October 2010
September 2010


Purchase or Rent (1)
The Age (1)