How to Benefit From Falling Interest Rates

There is no need to change your home loan repayments – you can still benefit!

Interest rates are low, bloody low. But what does that mean for you? That depends if you have debt or are lucky enough to be debt-free and looking to invest. If you have no debts, you actually may not benefit from the low-interest rate environment (we will discuss your situation in another article).

Those of us with debts, such as home loans, car loans, credit cards and other investment debts, should not be rejoicing too soon. For the average variable home loan, rates have dropped from about 8% in 2009 to now closer to 4%. This means your minimum repayment on your debt is decreasing and you should have more money (or less debt… unless you’ve spent it).

Lets look at a case study:

Bill and Michelle have a $400,000 home loan which they started in 2009 (both aged 25) over a 30 year term at a rate of 8%. Their monthly repayment was $2,935. Now in 2016, with a lower interest rate of 4%, their minimum payment is $1,909 (a huge saving of $1,025 per month!) If Bill and Michelle had ignored their cost-saving and instead kept paying the higher repayment, they would be debt free in 16 years and save a whopping $153,280 in interest over the life of their loan.

To take this example further, Bill & Michelle are now 40, own their home outright and don’t have their repayment anymore (previously it was $2,935). What a great position to be in and what a great opportunity to build their wealth further. They are debt free – what should they do? Buy more property, start a share portfolio, put more into super, start a savings plan…? There is no right or wrong answer but consideration must be given to their investment experience, personal preferences, knowledge risk profile and time horizon. If they take the simplest option, and redirect their old repayment amount into an investment at a rate of 7% for the next 25 years, they would have a portfolio worth $1,852,974 by the age of 65.

NOT BAD considering there are probably many more effective options than just a simple savings plan!

This really highlights the need to create good financial behaviours from an early age and stick to your strategy. At Fortress Financial Solutions we take time to create those positive behaviours and educate you on WHY you should follow them.

Right now (May 2016) if you are paying more than 4.2% on your home loan, you need to see a broker to get this reduced. The environment has changed and you owe it to yourself to take advantage of it… and you owe it to your wallet! Here at Fortress, we would be happy to point you in the right direction of some capable lenders that are part of the Fortress Extended Family. This is a group of experts who are at the top of their game; we use them and we recommend that you do too!

 

We’d love to hear from you! To book a free consultation to improve your position, or to get a recommendation from the Fortress Extended Family, please call our office on 07 4646 4970 or contact us on info@fortressfs.com.au

Written by Chris Black, Director of Fortress Financial Solutions

Fortress Financial Solutions founder Chris Black is an award-winning financial planner based in Toowoomba who specialises in superannuation, investing, business succession, cash flow management, retirement planning and personal insurances (including life insurance, income protection, total permanent disability and trauma insurance).

Corporate Authorised Representative of Magnitude Group Pty Ltd ABN 54 086 266 202, AFSL 221557.

Information on this site may be regarded as general advice. That is, your personal objectives, needs or financial situations were not taken into account when preparing this information. Accordingly, you should consider the appropriateness of any general advice we have given you, having regard to your own objectives, financial situation and needs before acting on it. Where the information relates to a particular financial product, you should obtain and consider the relevant product disclosure statement before making any decision to purchase that financial product.

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