My client rang me yesterday to let me know that the 0.25% interest rate drop that occurred over her 3 investment properties plus her own home (ie 4 mortgages) resulted in a saving of over $670 per month (which she was very excited about)...and it got me thinking what does the rate drop mean for you?

Well the answer is probably going to be dictated by not only how large your current debt is BUT also what stage of investing you are currently in and your current cashflow status.

Brand New Investors

If you are brand new to investing and about to embark on the journey, now is the time to get a new borrowing capacity done by your broker as the rate drop will mean your borrowing capacity will have increased. Higher borrowing capacity means you have more options when selecting a property.

OR

Your can maintain your original borrowing capacity and invest in a property that has a smaller value. It means that you may have surplus cashflow each week (by borrowing less) that you can put into other investments or paying off debt faster.

Investors With Established Portfolios:

If you already have an established portfolio with some growth already, now is the time to also review your borrowing capacity and see if between your existing equity and current cash flow status whether you can add your next property to your portfolio.

OR

You can use the surplus cash flow to reduce down your PPOR (principal place of residence) as much as possible (as that debt is non deductible) thus putting you in a better position when you are ready to borrow again.

BUT keep in mind that property grows in value faster than you can save. For example, if you were putting away $200 per week into savings, after 5 years your savings wouldn't be as high as your property growth had you popped that into an investment property in a growth location. #FoodForThought

Investors About To Retire:

If you are about to retire shortly you may decide to use the surplus cash flow from each month to reduce your debt as much as possible so you have the most amount of funds to retire on.

BUT before you do anything you really should do two important things.

1. Speak to your accountant (as I am not one) as the tips above are generic in nature and not applicable to your personal circumstances to find out the best tax strategy for your situation

and

2. Make a time to chat with me about property investing strategy (as an accountant is not a property strategist and can only provide information regarding property that is generic in nature).

Regardless of what stage of investing you are in - the rate drop is a fantastic opportunity for you to exercise self control and still maintain your lifestyle as it was BEFORE the drop as proof to yourself that you actually can save money/invest in property/live happily in a frugal way. If you have surplus funds now and you were living comfortably before the drop - now could be the time to invest again.

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