Interest rates are often given a lot of thought and attention by investors, and it's often hard to find out when to fix. Here's my perspective on negotiating this decision.
Blogger: Kevin Lee, founder, Smart Property Adviser
The team at Smart Property Adviser recently surveyed our clients asking two very direct questions:
1. What would you like more of from property investment?
2. What would you like less of from property investment?
The responses we received for the first question were 'almost predictable' and revolved around increasing their income.
However, the responses we received for question #2 had a common thread. Most respondents wanted less headache with interest rates, in fact this is what one respondent said: "[less of] wondering whether or not to wait til the next interest rate drop before fixing!"
Since the RBA meet again next Tuesday (August 6th) and currently there's intense speculation about another drop in interest rates, I thought it would be prudent to share a little known secret with Smart Property Investment readers. To some readers it's 'fair warning'.
Since the GFC the current interest rate gap between the RBA official cash rate and the average basic variable home loan rate across The Big Four Banks has risen to 1.46%.
Yes, all those RBA movements where the banks kept "a little bit here and a little bit there" have added up to a massive GAP!
What's worse is that although the RBA have been cutting their official rate - and WILL do so again next week - the major banks are not giving their existing customers (you) the appropriate rate cut on your existing loan/s.
Read on if you want to see the game they're playing with you ....
A few weeks ago we became aware that a major bank was charging Lyn (a client) 5.72% on her $230k variable rate loan .... BUT for a new client the same loan would be just 5.35%.
This bank was profiteering to the tune of 37 points or $851 a year on this one loan for one client - blatantly discriminating against taking advantage of an existing client to the tune of over $70 a month!
Little wonder they make around $5 billion profit each year....
We investigated and found that it's common amongst the Big Four to have a variable rate product for "new money" - translated that means you need to be either a new client, or borrow 'X' extra dollars from them to qualify.
Our finance team quickly pointed out to Lyn that the best carded variable rate is actually 4.99% - and that rate is available from either a 'second tier' bank and a non bank lender.
Here's a tip: most readers wouldn't know that there are currently 25 variable rate loans at or under 5.19% from both Big Four, second tier and non bank lenders.
Naturally some conditions, restrictions and/or fees etc apply but hey, it's not rocket science.
If you're currently paying 5.72% on your $300k loan and you could be on 5.19% - ask yourself whether the $1590 difference is better off in your bank account or theirs? So their secret is out...
When the RBA cuts official interest rates by 25 points again next week, let's hope your bank passes it on to you as well.
But in any case, chances are you can do better than what you currently have. Contact our office if you want some 'negotiating tips' to assist you to get the best rate possible out of your current lender.