There has been quite a lot of discussion around interest rates at the moment.
We have seen some recent reductions to the cash rate by the RBA, only parts of which have been passed on by Lenders.
Now we are seeing that Fixed rates are moving down faster than they have for some time as Lenders scramble to attract borrowers.
What does all this mean?
Well, reduced interest rates are always welcome and the improved cash flow position for many property investors is sure to make them smile.
What I am happy about though is the reduction to assessment rates which are a far more important matter to investors. The assessment rate is the rate at which a lender assesses your borrowing position, so when these move lower, the way you look to a lender tends to improve.
Normally a Lender sets the assessment rate as a margin over their standard variable rate so any reduction usually means an improved result for the borrower. (I say usually because the reduction in the assessment rate is always at the Lender’s discretion.)
The lower the rate, the better off you will be when your Lender of choice looks at your borrowing power. This is great news.
Now let’s look at the Fixed Rate question.
A drop in Fixed rates can indicate the long term funding position that a Lender wants. It can also simply be an indicator of the space the Lender wants to occupy in the market and so their rate is a pure marketing ploy to help them get to where they want to be.
You can tell if this is the case simply by comparing what else is going in the market at the time. For example, we recently saw a 3 year Fixed Rate of 5.99% which was below the rest of the market. This could have been simply a marketing ploy by that particular lender, however we saw that other lenders very quickly moved into that space and began to offer the same or similar rates.
This is a good sign as having more Lenders offering low Fixed Rates means you have more choice and flexibility when assessing your options.
It is definately worth considering Fixed rates now while rates are down and assessment rates are low. Knowing you have secured fixed repayments on part of your investment portfolio for up to 3 years, can make good sense for a number of reasons. ( Generally speaking I tend to see fixing your interest rate as a less of a cost saving exercise and more of a risk management exercise.)
However you should remember that a Fixed rate does have certain limitations when it comes to extra repayments and paying out the loan early. I recommend you discuss the consequences of a Fixed Rate Loan with a Finance professional before you decide to go down that path.
Reviewing your borrowing position when there are changes like we are seeing in the market is always a wise move.
You’re under no obligation to act, but having the data to hand as it applies to your particular situation, means you are at least informed of what your options are.