With property prices climbing and interest rates unconventionally low, investors are increasingly wondering whether fixing their interest rates will benefit them in the long run.
Blogger: Zaki Ameer, director, Dream Design Property
A common question that is cropping up quite often right now is “should I fix my interest rates?” It’s a very good question, and something that I can never give a 100 per cent confident answer to, given that nobody has a crystal ball.
But, having said that, I am advising my clients that they should fix their interest rates. Or at the very least, partially fix them. Let me explain why.
Right now, what we are experiencing in Australia is a very unique situation in the economy. This involves strengthening property prices in Australia’s capital cities, yet interest rates that remain unconventionally low. In my opinion, this is the very best situation in which to invest.
The usual reaction of the Reserve Bank when they have evidence of increasing house prices and low unemployment is to increase interest rates. However, interest rates have remained unchanged for two years now, and in my opinion, that’s because there is still some local uncertainty within our economy. This could be because of local involvement in international terrorism, but I am not really sure of the real reason for the uncertainty that the RBA has identified.
As a result, some banks are now offering five-year fixed term rates at 4.99 per cent, which is incredibly favourable. My advice to investors usually revolves around property investment for the longer term, and with this in mind, I would advise you all to most certainly take this opportunity to fix your rates, as opposed to risking variable rates.
The housing market and overall economy in the USA and Europe has improved since the Global Financial Crisis, and interest rates, together with property prices, are increasing. However, Australia’s situation remains unique.
In fact, the opportunity to invest in property in Australia has never been better, due to increasing property prices and low interest rates.
Aside from the obvious benefits, which is low interest repayments for those who have fixed, what many people do not realise is that when the Reserve Bank does increase its interest rates, rent prices usually increase too, and this then creates more cash flow for investors.
What you do with the additional cash flow is up to you – invest in more property, travel, or reduce your working hours.