The first Tuesday of the month has passed and unfortunately, it looks like that expensive Ella Bache cream I really wanted will have to be Nivea from Coles for now. The hot shoes I just found on my lunch break might also have to wait awhile. This is all because I’ve been budgeting for a rate cut.
BY LAUREN CROSS
Another 25 basis points would have made life just that little bit easier – more trips to my original home city of Sydney, more fun make-up thing-a-ma-jigs to buy and more bling or things I don’t need for my upcoming wedding (no joke, I’m even considering buying toilet paper with little brides and grooms on them, that’s how crazy weddings and all their trinkets have become! Sadly I feel that I’m becoming one of those bridezillas… “Everything must be perfect and I MUST have wedding toilet paper!”)
Ironically, the bad news is actually good news. Rates have been kept on hold for a second month in a row, which actually indicates that the Australian economy isn’t doing too badly right now. In fact, it shows the Reserve Bank of Australia (RBA) has confidence in both the local and even the world’s economy. As RBA Governor Glenn Stevens said in the board’s minutes, “Recent information is consistent with the expectation that the world economy will grow at a below-trend pace this year, but does not suggest that a deep downturn is occurring. Several European countries will record very weak outcomes, but the US economy is continuing a moderate expansion”.
However, like most investors, the main reason I’m now thinking about locking in is because many banks are now making their own calls on interest rates, independently of the RBA. Whoever thought this was possible? Sure you can jump ship and switch lenders, but for those of you with a high loan-to-value ratio like me, it would simply mean more mortgage insurance. The reality is, I’m stuck with my lender at the moment and even if I wasn’t, I probably wouldn’t shop around anyway. Admittedly, my bank is actually quite good and the going locked in rate right now is just 5.99 per cent for three years. I was hoping this rate might drop down to 5.5 per cent but I realise that’s probably being greedy. After all, nothing comes for free, especially when it comes to investing. I think a lot of Australians dream about interest rates falling down to four or five per cent, but I’m now starting to think that’s unrealistic.
So I’ve decided today in fact, even as I’m writing this blog, that I’m going to join the world of locked-in borrowers. I’ve been told many times before that people who lock in usually pay more than those who pay variable rates over the life of the loan… But who cares? I think 5.99 per cent is pretty fantastic and it will provide security for the next three years. Considering that we almost locked in at 7.2 per cent last year, the difference is quite amazing. In fact, the rates on offer at the moment are exciting, because they make investing so much easier. Suddenly negatively geared property is almost neutrally geared and neutrally geared property becomes positively geared. We might be experiencing some of the best rates for quite some time and with that, there’s a whole world of opportunity out there to not only find a property at a great price, but also to find a bank which offers great loans.
What do you think? Has the latest RBA announcement made you think about locking in interest rates? Would you prefer the security to lock in or is it better to ride the variable rate rollercoaster? For the record, I will probably pass on the wedding toilet paper. Perhaps I’d be better off putting that $200 (yes it’s $50 for four wedding toilet paper rolls or $200 for 12!) on something like a home loan instead! Although I did just find some lovely wedding candles that make the bathrooms smell nice….
Lauren Cross is a journalist/subeditor of Australian Property Investor magazine, www.apimagazine.com.au