How To Invest When Rates Fall
Most investors think you make more money when rates fall because house prices go up.
And yes, that’s true.
But it’s also a really limited way of thinking.
It suggests you’re a passenger, and can’t really do anything but go with the flow.
In fact, there are some very specific ways to increase your income, increase capital growth and get a bigger tax return when rates fall.
Your Repayments Are Going Down
If you’re on a variable interest rate your repayments are going down at the moment.
If you’ve been getting by OK on the higher rates, this is certainly great news.
And you can do something with the extra cash.
The best option would be putting it into an offset or redraw on your home loan, and using the savings to pay your home off faster as you can’t claim anything back on your personal debts.
It could be time to catch up with some maintenance around the property.
Or maybe put some extra money aside into a separate bank account for a ‘rainy day’.
Another option could be paying interest in advance, which is an option on some loans. If you pre-pay some of the interest you’ll otherwise pay next financial year, you can claim it on your tax this year.
Anyway, I know it might not be big amounts yet, but as rates keep getting lower, and if you’ve got multiple investment properties, it’ll add up.
Be smart, be disciplined and get something out of it. Otherwise you’ll be kicking yourself when they start going up again and you do nothing.
What else?
How about this for an idea.
Beat The Banks At Their Own Game
If you’re on a fixed rate, now might be a great time to switch to a variable rate. Now, I’ll be up front on this and tell you … it’ll cost a tidy packet.
However, you could still end up well in front so talk to the broker who set your loan up and ask what your options are.
Something else you can take advantage of is the sudden increase in competition between the banks.
They’re fighting over the sudden influx of borrowers, and now could be time to ask the question … Can I get a lower rate?
And if they say no, you can pick up and refinance with another bank.
Remember, this isn’t financial advice. Always check with your mortgage broker about what your options are.
You Can Borrow More
Another great benefit of lower rates is that you can borrow more.
Very roughly, you could borrow up to $20,000 more each time rates fall 0.25%.
Don’t quote me on this figure though because the figure differs depending on how big the loan is, how much you earn and so on.
The point is, the lower rates go, the more you can borrow.
And the reason for this is that banks calculate how much you can repay each month. And when rates fall, that repayment can pay back a larger loan.
This of course lets you target higher priced houses which gives you more options. Or maybe even two houses instead of one.
But that’s not even the best part.
The Market Is Awash With Money.
The best part is … every borrower can borrow more.
And if people have more money to spend on the same set of available houses, the price of houses will go up.
It’s the reason why houses go up as rates fall.
Consumer confidence goes up as well, and we have more people coming into the market.
I mean, how many people have you heard saying they’ll buy when rates fall?
That’s now, and buyers are getting in.
Here’s another one for you.
Target Higher Growth Properties
Look for properties which are neutrally geared, or slightly more negatively geared, but offer great growth potential.
There’s a relationship between rental yields and growth, and generally speaking, higher growth properties get slightly lower rental yields.
When rates fall, you can take on properties with lower rental yields which promise higher growth.
In other words, you might be getting a little less rent but you’re not paying as much interest either.
And it all works out the same, except now you’ve got a higher growth property.
Want another idea?
You can wait until rates have bottomed out, and then lock in long term fixed rates to protect yourself against rises.
Yes, rates are going to go up eventually just like they go down, so locking in a low rate at the bottom could be a smart move.
Ready To Take Advantage Of Falling Rates?
Smart investors are active investors.
They know the market doesn’t stay still, and they’re always looking for ways to take advantage of conditions as they change.
And there’s no better change than a rate change … down.
Of course, all this is general advice.
What I’d like to offer you is some time with one of our Senior Property Wealth Planners.
If you’ve got a portfolio already, they’ll take a deep look at what your options are to cut your interest bill and potentially get back into the market as it gets ready to move.
And if you’re not in the market yet, you can make your first couple of years absolute winners by getting in at the start of a falling rate cycle.
Now is the time to act.
My advice is to get in now while the going’s good.
Be smart and build up as much equity as you can, like making hay while the sun shines.
Leave your details below and we’ll call you back to set up a time which suits you.
And we’ll show you how these specific strategies can help you create more income, more capital growth and a bigger tax refund.