Fixed interest rates are now at all-time lows and it is a good time to be a borrower, however, over the last few weeks we’ve started to see a move towards margin protection, particularly in the property investment loan space, even though rates have fallen following the latest OCR reduction.
We are aware that some banks have already started the conversation with their clients as to future increases in base rates for investment property loans, with increases of around 25 basis points already seen in one bank. Traditionally, investment property has always attracted higher capital holding ratios and, therefore, it’s no surprise that we see these increases in a Bank’s rate protection strategy.
Where will rates end up – no one knows as there is no crystal ball, so there is no guarantee of locking in the lowest cost interest rate option. That said, short-term fixed rates (e.g. 1 year), locked in, is what we have consistently recommended clients do over the last few years -this has proven to be a very good strategy.
We encourage our customers to think about what’s important to them.
If you need cash flow certainty, the 3-year rate would be our pick - If you would be comfortable with a bit more risk that interest rates won’t rise, then the 1-year rate is still a great bet.
Regardless of your choice, we encourage you to accelerate loan repayments above the Bank minimums while rates are low. This will protect you against any future rate rises, as you can always reduce to minimum repayments when rates do rise.
Everyone’s situation is different, so it is important to talk to a Mortgage Adviser about your current and likely, future circumstances, when setting rate and repayment amounts.
Contact Martin Burke at Eightfold Financial Services to discuss your situation:
Mobile: 027 522 4524