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Strategies in a low interest rate environment

16/03/2009

The record low interest rates have considerably changed the dynamics of property investment in Australia.

The 4% drop in official interest rates in the past six months, along with increasing rental yields, presents savvy investors with what may well be a once-in-a-lifetime opportunity.

For new and existing property investors, here are some tips to maximise the benefits of low interest rates on your loans:

  • Do not be too hasty to fix
    Despite the interest rate reductions, there is still a considerable gap between the variable and fixed rates on offer. Discounted variable interest rates are still well below fixed rates, with many economists expecting further rate reductions this year.
  • Look for a home loan that offers flexibility
    Once rates do bottom out (which is very difficult to pick) you may want to be able to switch to a low fixed rate, or perhaps split your loan into fixed and variable. Make sure your loans provide the flexibility to switch in the future at a reasonable cost.
  • Ensure you have access to any extra repayments
    While interest rates are so low, many people will take the opportunity to pay extra off their home loan or investment loan, by keeping their repayments at the higher level. This can be a great strategy, but make sure you can access these extra repayments in the future, just in case. This access is typically via an offset account or redraw facility.
  • Consider mortgage protection insurance
    This is the insurance that ensures that you, as the borrower, can continue to make your loan repayments should you lose your job or become seriously ill and unable to work and subsidise the rent earned to make your loan repayments.
  • Seek advice from experts
    Home and investment loans are major financial decisions, and there is a massive range of options out there, so talking to an expert adviser that you trust can be very important.

As always, talk to your Smartline Personal Mortgage Adviser for more information.

 

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