You can – and should – insulate yourself against interest rate rises.
Every month, property owners and investors nervously wait to find out whether the Reserve Bank has raised interest rates. Every month I read newspaper articles telling me how further interest rate rises will cripple investors and homeowners. We know that interest rate changes are a fact of life. We can’t change them so we just have to deal with them. I’ve learned that, with a little planning, we don’t have to lose sleep worrying about them.
Whenever I look at buying a property and plan for investment property loans, I take a worst-case scenario. I know experts who recommend calculating on a 2% interest rate rise. This is pretty wise, but rates in the past have gone up more than 2% in a relatively short time. So when I’m calculating repayments on investment property loans then I tend to budget on interest rates being approximately 3% above current interest rates here in Australia. If a property looks good with +3% interest rates, it’ll be better with current rates, and if interest rates go up then I know exactly what to expect. Now obviously you need to use the rates relevant in your part of the world if you’re not in Australia.
The lesson to be learned here is that by keeping a cool head and planning for higher interest rates, you’ll be able to withstand any interest rate rises and won’t be one of those people the media jump up and down about when there are interest rate rises.
Let’s be honest, we’re all investing because we want added security. By budgeting at +3% you’ll sleep better at night because you’ll be sure to withstand fluctuations that have some other investors trembling.
And that can only put you in a stronger position!