On the up: What will higher interest rates mean for real estate investors in New Zealand and further afield?
The Land of the Long White Cloud is shaping up to raise rates and the country may well be a bellwether for the Australia...
Since November 2011, the cash rate has been cut six times, leaving potential savings and portfolio growth for investors who act wisely on these changes.
Since May 2012, the official cash rate has been reduced by 1.25 per cent, and Smartline Personal Mortgage Adviser’s executive director, Joe Sirianni, explained that this could see investors saving $90,000 and cutting years off their loan term.
A 30-year $300,000 loan that was bought in May 2013 at seven per cent would most likely see investors paying around six per cent, Mr Sirianni said, due to banks passing on about one per cent.
If payments were maintained at their previous levels, this would take six years and nine months off the loan.
“If you’ve been used to making those repayments at that higher rate, it should then be reasonably painless to continue to keep them at that same level,” he said.
“Chances are most people won’t even miss the money and the benefits of not touching that money now for a major long-term benefit should outweigh any pain.”
Rather than $347,000 in interest, about $257,000 would be paid instead, or about 26 per cent less.
Further cuts, he explained, would compound this effect.
Interest is the amount of money charged by a lender or financial institution for a loan, which is calculated as the percentage of the principal amount paid over the loan term.
Property refers to either a tangible or intangible item that an individual or business has legal rights or ownership of, such as houses, cars, stocks or bond certificates.
Real estate is a type of real property that refers to any land and its permanent improvement or structures that come with it, whether natural or man-made.