On the whole, interest rates generally don't move up or down rapidly unless there is something serious happening, like a global health pandemic or a global financial crisis!
During both of these events, interest rates were lowered rapidly to underpin, and stimulate, the economy during the resultant turbulent economic times, but that is far from normal.
It's important to keep in mind that these scenarios are extremely rare, so please don't lose sleep over what interest rates may, or may not, do in the future. Rather, do your best to secure the optimal loan for your individual circumstances as well as your current and future property investment plans.
Of course, mortgages do need to be repaid at some point, whether it's through your own mortgage repayments, rental income, or selling the property. Most property owners opt for a principal and interest mortgage over 25 or 30 years, which means they are making regular repayments that will eventually pay off the debt.
On the other hand, investors tend to use interest‐only repayments, because only the interest is a tax deduction, but also to reduce the additional cash‐flow demands from their own bank accounts (we talk more about this in chapter 8) after rental income.
KATE TELLS:
TO FIX OR NOT TO FIX?
Many years ago, I was advised to fix all of my loans at over 6 per cent (which seemed good at the time) for three years — right before interest rates started falling.
I was totally stuck and couldn't get out of it without massive break fees. I couldn't pay the loans down, even if I wanted to, because of the fixed‐loan restrictions. It killed me for over three years as I watched interest rates drop and drop and drop — and there was me paying bloody 6 per cent! If only I'd left a portion of it variable, I would've felt a bit happier and left myself with some flexibility to pay the loans down.
My finance blunder taught me to listen to advisers who know what they're talking about, who aren't in it for themselves, and who can help you plan out your future borrowings and life goals.
CASE STUDY: LISA'S STORY
Kate has known Lisa for some time. Lisa started investing on her own some years back and made some mistakes along the way, but always kept going because she never lost sight of the ultimate goal — financial independence.
Lisa's first goal was to pay off her home, a unit she'd bought when she was younger and was now living in with her partner. She did this and called Kate the day that she made her final payment with such excitement that it was infectious.
This gave her the freedom to not only leverage off the equity she had in her home, but also to start paying off the debt on the investment properties.
As Lisa’s career progressed, and she was being promoted at work and literally taking over the world, Kate worked with her to buy more property to get her where she wants to be, not relying on anyone else for income, not relying on a state pension or super later in life and giving her — above all — choices and freedom. Having the option whether to work or not, whether to work part‐time or not, whether to travel the world, see family in Europe, and enjoy life with some little luxuries here and there — that's all that it's about. Lisa's the ultimate female investor!
TO‐DO LIST
Make an obligation‐free, no‐cost appointment with a mortgage broker. Chat to them about your goals and have them assess what you can and can't borrow. This will start the conversation and you'll get some insights.
Have a think about the size of loan that you're comfortable with and consider the repayment amounts that the broker will show you. You also need to know your own risk profile.
Talk to a property‐investment professional about timeframes and when it might be wise to apply for a pre‐approval. Property and finance markets move and change all the time, so don't assume it's the same as it was last year.
Start formulating your plan. It's always easier to build and gain momentum once you've actually started — which is what you've done — woo hoo, we say!
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