We are living in a time of record low interest rates, thanks to the Reserve Bank cut recently. Is this your opportunity to reap the benefits of these low interest rates? Here’s what others are saying about this low rate, and what’s possible
In a recent blog article Mark Bouris from Yellow Brick Road elaborated on a number of strategies for debt reduction. He says, “This is a great time to consolidate and pay down your debts.” Property analyst Tim Lawless from CoreLogic RP Data says, “Lower mortgage rates have the potential to add some fuel to what are already strong housing markets.”
So, what does this really mean for you?
Could this be a sign to look at your long-term financial objectives and explore how to create an investment property portfolio? Could this be the right time to investigate the benefits of consolidating your existing loans? Could this lower interest rate make a difference to your short-term cashflow requirements? One thing is for sure, if you don’t make time to get these questions answered, then it may just pass you by.
WHAT CAN YOU DO?
To take advantage of this current low interest rate, first you need to decide whether or not you feel there’s value for money to dedicate a few hours of your time to review what benefits you could reap from this record low interest rate. Maybe, and just a maybe, what if the Reserve Bank was on your side—how might you take advantage of this decision? If you see value in this then here’s what’s next.
Step One: make a decision to reconnect with your accountant, mortgage broker, financial advisers—whoever is on your financial management team, and begin the conversation about consolidating any existing loans, and seek their advice about how to take advantage of these current conditions and build a long-term financial strategy.
Step Two: if any of your advisers want to keep the status quo, and not make any changes, then seek a second opinion. Your financial future is your responsibility, so begin to put your best interests ahead of what’s considered easy or not seen as a priority.
Step Three: use the low interest rates to your advantage.
CONSOLIDATE AND REDUCE YOUR DEBTS
Consolidating is a type of refinancing that usually means getting a new loan to pay out a number of other loans. In looking at how to consolidate your finances, the best place to start is to take stock of where you are. List out all your current debts. Then, look at what your most expensive high interest debts are, such as credit cards, and personal loans. Imagine the money you might save by getting a consolidation loan, with a lower interest rate, to pay off debts.
Any good mortgage broker will advise you on how best to maximise your borrowing capacity. What’s important is that you find out from your broker if you are in a position to refinance your mortgage to consolidate your high-interest debts. Because, by refinancing you may find there are better ways to use money.
BUILDING YOUR FUTURE WEALTH
If you’re reading this article, then I’m thinking you are interested in building wealth. Correct? At the same time, you may be trapped in a mindset of “I can’t afford to invest at this time.”
Well, today’s interest rates make investing that much more affordable, and manageable for many people. The shift that needs to occur is the way you think and have a mindset that says, “I can afford to invest, and I will explore all avenues of how I can build my wealth.” This isn’t just about positive psychology or hype—this is about your future and gaining the maximum leverage out of your efforts.
With such low interest rates on mortgages, this is your opportunity to think about using your home loan to build wealth by leveraging investments. The secret to building wealth is using the equity that you have already built up in your property to assist you to invest in an asset that appreciates in value.
By looking to invest in neutral to positive cash flow investments there are many benefits in terms of your investment strategy. The house essentially pays for itself—with money left over. These types of real estate opportunities increase your serviceability, making you more attractive to banks and lenders. In short, if you can find the right investment property, and increase your income you are able to borrow more.
However, in making the time to review your current circumstances, it’s also prudent to ensure that you have a strong plan for the future to adjust, accommodate, and work with any potential rate rises. Considering and planning for all possible scenarios is just wise management.
One day you will need more than your job to generate an income. Therefore, if ever there was a time to rethink how you’re managing your money, and having your money work for you, hopefully it’s now. I encourage you to make this a priority and find out how to create a future that truly works for you.
The writer is the founder of IPNA—Investment Property for New Australians. He was born in Sri Lanka and is a best selling co-author of three business books