Record Lows for Mortgage Interest Rates

Share This
Share on facebook
Share on twitter
Share on linkedin
Share on email

It has been many years since we’ve seen mortgage interest rates so low. That’s great news for first home buyers and investors in particular. Banks appear to be in a bidding war to attract borrowers. Meanwhile the Reserve Bank is in the process of implementing measures to restrain mortgage lending so as to reduce the risk of house price inflation.

Borrowing money at a low interest rate is both an opportunity and a threat. Interest rates move in cycles. Borrow at the low point of a cycle and it goes without saying that over time, interest rates will increase, thus increasing your mortgage payments.

There are steps you can take to protect yourself when borrowing at low interest rates.

While it is tempting to take advantage of lower rates to borrow as much as possible, your repayments may become unaffordable when interest rates increase. It is sensible to leave yourself some wriggle room by borrowing an amount that you know will be affordable when interest rates rise by a couple of percent.

Fixing the interest rate for the whole of your mortgage for a period of time can create uncertainty about what the interest rate will be at the end of the period. To reduce this uncertainty, consider chunking your mortgage up into two three amounts which are fixed for different periods of time. That way, if rates go up, only part of your mortgage will be affected at any one time, thus spreading the impact of higher mortgage repayments.

While it may seem a good idea to lock in a low interest rate for long period of time, be aware that if your circumstances change and you need to sell your property or repay your mortgage for some other reason, you may be charged a penalty for early repayment.

Related Articles

Investment
Liz Koh

Responsible Investing

There is a worldwide trend for investors to want to make a positive contribution to the world by investing in companies that are socially and environmentally responsible. If you are passionate about the effects of climate change, the scarcity of food and water, and social or environmental policies in general, then you will no doubt wish to ensure that the companies in which you invest are going about their business in a manner that is consistent with your views.

Read More »

Stay in the loop

Keep up to date with the latest developments from Enrich Retirement