- August 13, 2013
- Posted by: Capital Funding
- Categories: Property Finance, Property Investment Finance, Self Managed Super Funds (SMSF), Small Business Finance
It’s great news regarding the RBA’s recent .25% reduction of the cash rate to 2.5% (Tuesday 6th August). This now brings the official cash rate to its lowest level in history and raises the question that we get asked on a daily basis “Will they come down any further?”. This question is then usually followed by “Is now the time to fix our interest rates?”
In respect to the first question, I don’t think anyone can provide a certain answer as there are just too many variables at play and too many variables out of the control of the RBA, or whatever Party happens to be leading this country. I think that there is a chance that we may see further reductions, but I think the RBA will sit on their hands for a little while just to see how things pan out. If the recent cuts don’t seem to stimulate activity and the election fails to improve confidence, then I think the RBA will step in and cut again. Prior to this though they are most likely to wait for at least 3 months just to see how the various indicators trend. If the indicators start trending in a positive direction then this may be the last rate cut that we will see.
Is now the time to fix your interest rate?
As many of you would be aware, we’ve been advising anyone that has been interested in fixing their rates over the past 24 months to only fix for a 12 month period. We held this position as we believed that rates would continue to decrease. Those clients that implemented this strategy have done quite well and have paid substantially less interest than if they stayed variable.
The gap between variable and fixed rates is now starting to compress which indicates that the market thinks that we’re approaching the bottom of the cycle. We think that if you are considering fixing now is a good time to get serious about it. There are strategies available that will allow you to fix now and still take advantage of any further rate reductions that may occur. However, before you fix your interest rates a number of things need to be considered, such as:
– whether you have plans to sell in the short to medium term
– whether you want to pay additional funds into your mortgage
– whether you want to take advantage of an offset facility
– whether your facility has competitive fixed rates
Different mortgage products have different capabilities, so it’s very important to ensure that you have the right facility and structure to ensure you can achieve your goals. If you would like to consider fixing your rates, then give us a call and we can quickly tell you whether your current facility is suitable for you and, if it is, help you structure the facility to maximise your position. If there is a more suitable facility available, we’ll help you establish and structure this facility.
Now is a great time to consider purchasing property for Wealth Creation purposes
Property can be an excellent vehicle to assist in long term Wealth Creation, a fact which is hard to argue with considering that over 50% of the BRW Richest 200 created their wealth from property. With interest rates at these levels and with property markets starting to show some movement, now is an excellent time to consider investing in property.
With the recent improvement in affordability, increasing rental yields and the low interest rates, the number of “cash flow positive” properties located in great locations is increasing dramatically. For those who are not aware of what “Positive Cash Flow” means, basically it means that it won’t cost you one cent to own this property and may actually provide an income from day one, once you take into account your allowable tax deductions. On top of this, the investment income can help you accelerate the reduction of your non deductible mortgage.
The indicators show that the property market is starting to gather some life. The RBA and the Government are relying on this industry to pick up growth in the economy as the Mining Boom continues to come off. We’re now at the stage where it’s becoming a better proposition for renters to purchase. If the State Governments were to adjust their FHOG schemes to allow existing properties to qualify, we would see a massive rush of First Home owners back into the market, driving those prices up quite quickly.
If you’re interested in purchasing an investment property and not quite sure as to how to go about it or whether you can afford to do it, then contact us and we can help you with the following:
– Determining what you can borrow
– Analysing the cash flow effect of a proposed purchase taking into account the tax effect
– Assisting with arranging the correct holding structures
– Helping you identify excellent properties that offer long term growth potential
– Providing guidance on Co-ownership structures if you would like to purchase with other parties
If you would like to talk with any one regarding any of the above issues, please feel free to contact us on 1300 725 339
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