interest Archives - Loans My Way

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loan and money finance

Hedge Your Bets

Well surprise, surprise, the Reserve Bank has again left interest rates on hold, an expected decision as mortgage holders again get to breathe a sigh of relief until February 2015. There are no signs on the horizon that rates will change early next year either, as we continue our record streak of low rates and stability that hasn’t been seen since the 1960’s.

In a survey involving 37 economists, a staggering 94% have predicted rates to change in 2015, with 89% of the 37 predicting the next shift will be upwards. Though no one can predict the future with any great accuracy, it seems that with sentiment at least, rates will be headed up in the not too distant future.

With the above in mind, you may ask what can you do to protect yourself? The answer is simple, take stock of what you owe the banks, have a look at how much you have been able to pay off over the past year or two, then make a plan of how much you plan to pay off in the next two to five years, and seriously consider fixing the rest.

As an example, if you owe $400,000, you have been paying $15,000 per year, you may want look at a 5 year fixed rate. The result could look like- $75,000 variable and
$325,000 fixed. With most banks, this will give you a small off-settable variable loan, with minimal exposure to shifting interest rates, plus a large protected sum of $325,000. Overall, this example with most lenders would give you the ability to clear $100,000 worth of debt in 5 years, whilst allowing you to be protected from upward rate movement.

With 5 year fixed rates still at 4.99% at most lenders, I am not sure if there has ever been a better time to consider the above, as these rates are the lowest they have been in the last 50 years.

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loan finance graph

Low rates, how can you cash in?


There is a lot of talk about interest rates decreasing in 2015, but what does this really mean for you? It will give the investors and owner occupiers a bit of confidence in the short term.

But how can you cash in on these historically low rates for the longer term?

The answer is simple, you need a good plan and it is better to plan when rates are low or nearing the bottom of the current interest rate cycle. As too many people start trying to plan when finances get uncomfortable, and interest rates are higher.

The first question you need to ask yourself is how much am I able to pay off the loan per year? Be realistic with this, if you can afford another $200 per week and you are paying off $5,000 per year already, allow yourself $15,000-20,000 per year. The next step is to take the remaining debt you are unable to pay off and secure that over the mid-term. If you owe around $400,000 and you are looking at a 3 year fixed rate, you could split the loan $340,000 3 year fixed and $60,000 variable, or 5 year fixed at $300,000 and $100,000 variable.

It may sound simple enough, but what does this really do for you?






For one it gives you certainty on the majority of your borrowings, you will be able to better budget and account for your expenses over the fixed period. Secondly it gives you protection against increasing rates, you will still have a variable portion of your loan, but this is limited and hopefully rapidly diminishing over the fixed period, limiting your exposure to interest rate movement.

Even though we cannot predict the future, you can be assured that low interest rates will not be around forever, please contact us to assist you in making a plan for your future?

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