This week’s question comes from Pat (paraphrased):
The Internet is riddled with OCR predictions. Every commentator sounds just as learned and trustworthy as the next. How seriously should property investors take these predictions?
To answer this question, we’ve turned to Ryan Smuts from Kris Pedersen Mortgages & Insurance. Ryan, take it away!
‘Whilethe interest rate market plays an important part in an investor’s financing strategy, it should never be the only factor for consideration. Having
a clear understanding of your personal position within the context of the interest rate market is just as crucial to the overall success of your
portfolio.
Regularly reviewing your interest rate position and hedging your bets to take advantage of potential drops in the future are matters of good practice.
That said, they do not always deliver the best results. Take for example: Say you are looking forward to May 2020. You can either fix now at 3.55%
or hold out for an even lower rate in 9 months by stomaching a +1.5% floating rate in the meantime. If you do the maths, you will likely
come to the conclusion that the future rate would have to drop fairly significantly for you to break even. Sometimes we see property investors
focusing too much on the rate they are going to potentially get in the future at the expense of paying for a much higher rate now. Interest rates
should always be compared on a rolling basis.’
That said, they do not always deliver the best results. Take for example: Say you are looking forward to May 2020. You can either fix now at 3.55%
or hold out for an even lower rate in 9 months by stomaching a +1.5% floating rate in the meantime. If you do the maths, you will likely
come to the conclusion that the future rate would have to drop fairly significantly for you to break even. Sometimes we see property investors
focusing too much on the rate they are going to potentially get in the future at the expense of paying for a much higher rate now. Interest rates
should always be compared on a rolling basis.’
Do you have any tenancy related questions? Write to us at [email protected] or hit us up on our social channels here and here.
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