Friday, 18th November 2016
Originally published on The Frontier Investor
Lower interest rates may have you tempted to splash out and spend the savings from your residential investment mortgage, but there's no need to act in haste. Some strategic thought now should see you reaping the rewards into the future - with more money in your pocket down the track. Whether that's paying extra from your loan each fortnight or adding to your portfolio, I've put together a handy guide of how you can make low interest rates work for you, rather than the other way around.
1. Increase your residential mortgage repayments
Well - when I say increase - I really mean, keep them as they were… If you're on interest only and have been paying a higher amount until now, don't be tempted to lower your repayment. Each extra dollar paid on your mortgage will shave your payments at the other end - it can be wise to keep going as you are.
2. … Or add them to your own home loan
It could be time to think of yourself. Any opportunity for outright home ownership will advantage you into the futures - make some extra repayments and start whittling down your personal mortgage.
3. Add to your portfolio
The current poor rate of return on cash in the bank doesn't offer much in the way of confidence for people needing to park their money. It could be time to look at buying another property instead, either starting out or increasing your portfolio. And as much as interest rates are low, banks are still assessing people's buying capacity as though they're servicing loans at 7%, so as much risk as possible is being mitigated in advance.
4. Shop around for finance
If you're an investor on a fixed loan, it could be time to shop around for another bank. The lower interest rates may make breaking your mortgage worthwhile - reassess your personal home loan at the same time and you may find yourself a very sweet deal.
5. Put it on the market…
Now I'm a buy-and-hold kind of girl, so I don't offer this advice lightly, but lower interest rates will mean there are more potential residential investors out there looking to add to their portfolios. Look at the property you're holding and ask yourself whether it will continue to meet your long-term needs. Do your figures and if not, it could be time to sell. You could then reinvest in something that's more relevant to the future shape of your portfolio.
It's important to seek professional advice relevant to your own needs, but these pointers should help you start the thinking process behind your next steps. Residential investors need to keep on their toes - your portfolio is like a business and should be treated as one if you're looking to succeed.
And if you get it right now, you will have that extra money to spend - but down the track in your retirement, when it counts.