Watch Out - High Interest Rates will Come Again
As we prepare for yet another cut to official interest rates, we need to be especially mindful of where we were at until very recently. Because as sure as night follows day, you can bet that interest rates wont stay at these low levels for very long.
So for those of you with mortgages, make the most of these low rates. After this week, Interest rates should be close to 50 year lows in Australia. When the economy recovers, and it will, watch out. The RBA will be watching for inflation. With all the extra money being printed around the world, inflation will again become a serious concern.
One of the most effective tools available to the RBA to curb inflation is through monetary policy - in basic terms, the setting of interest rates. Don't think they wont use it to bump up interest rates again. They will, and it could all change very quickly.
My plan, and i might be proven wrong (I'm not a financial expert), is to wait for this rate cut and perhaps one more. I'm then going to fix my rate for the next few years, anywhere from 3 to 5 years. If i time it correctly, i should be able to pick up a fixed rate of at most around 5%, or maybe even in the high 4's.
Internationally, that's probably not a great interest rate. But for Australia, which should weather the financial crisis fairly well, its about as good as it will get.
If you want to change your loan and borrow from say a Japanese Bank, you may get a better rate. Not a bad strategy, just so long as you remember that you are betting on the rates in a foreign country, as well as taking a gamble on the currency exchange rate. Dangerous, but potentially very profitable. I'll probably stick to Australia.
Anyway, while you are saving a massive amount of money compared to September last year when the present rate cutting strategy was implemented, consider the future as well. Its not a bad idea to save some of this extra money, or pay off some more of your loan. Consider investing something into the local economy - more money locally means more jobs.
But also have a look at fixing your interest rate. You could even try splitting some of your mortgage, half into variable and half fixed. Or some other combination.
Just have a think about how you would feel if you stick to variable and the rates head back to over 9%. Even if you fix it on 5% and the rate drops, chances are that over 3-5 years the variable rate will still average over that figure.
These are just my thoughts. Id suggest speaking to a qualified financial advisor, but I'm still not convinced that they know more about your money than you do. If they think they do, ask how they went with their investments over the last 3 years...
.
About Just Grumpy
0 comments
Post a Comment