Residential Property Investment – Barriers > What if Interest Rates Goes Up?
Okay, Here’s the first one of the fears!
What if Interest Rates Goes Up?
If you are scared of interest rates going up then the solution is to fix it. Just remember that interest rates can both go up and down. Fixing the interest rate reduces the risk that you will have to pay more interest in the future (i.e. guarantee that your interest expense is constant over the period) However, if interest rate drops and you have fixed it then you won’t get any benefit of the interest savings. A suggestion is to fix half the loan so that you can get 1/2 the benefit of interest movement in either direction.
Most people think are scared that interest rates, fixing interest rates will only guarantee that your expense is known (ie. it will not increase or decrease). The factor to note when fixing your interest rates, especially in the more recent economic time (2008) when interest rates all over the world has dropped dramatically, is that fixed rate break cost will go up approximately proportional to the interest savings from the rate drop.
Remember that Banks lend money based on your current financial situation, so as the financial situation improves (e.g. interest rate drop) you would benefit, however if the financial situation deteriorate (e.g. interest rate rise) you would suffer. That is why some people prefer the certainty of being able to service the interest payments through good times or bad times (assuming their financial situation does not change through time)
So think about this the next time you think about fixing your interest rates!
Residential Property Investment – Barriers > What if Interest Rates Goes Up?