Australians have enjoyed a gravy train of low interest rates and cheap money for quite a while now. But the sands are shifting and we have begun ushering in a new era—and it’s not great news for people wanting to get into the real estate market.
Thanks to a perfect storm of financial conditions caused partly by the COVID-19 pandemic, it’s been a no-brainer to borrow money for pennies and multiply it by investing in high-growth assets. But what’s actually happening now?
Simply put, it might be time to lock in the super low fixed rates offered right now, because they might not be there for much longer. Borrowers are currently being encouraged to lock part of their mortgage at a cheaper fixed rate – a sign that interest rates are about to change.
What’s happening is that the CBA – the nation’s biggest lender – is lifting its three and four-year fixed rates this month. Bank funding costs are rising each day.
All this is happening because of the RBA. It’s not that the RBA is hiking rates – they’re not even thinking of hiking rates at the moment. They’ve locked them down. But they’re winding up the TFF (Term Funding Facility). Which was an emergency measure that was put in place during COVID.
What Has Been Happening Behind the Scenes
So, what happened was that effectively the RBA lent money to the banks at an ultra-low rate of 1% on fixed terms. And then, in turn, the banks passed it on to their customers at super cheap fixed rates.
That’s why there’s a massive difference between fixed and variable mortgage rates lately. But it can’t last forever. And it looks like the RBA will start winding up the TFF in the next couple of weeks.
So, as a result, the difference between fixed and variable has to narrow and go back to normal levels.
And the truth is, the variable rates aren’t going anywhere until the RBA raises the cash rate—which is years away.
And it’s not in Australia alone. This is also happening in Europe and America.
The central banks are now adjusting interest rates to match economic growth. Because basically, economies are booming everywhere. So fixed rates are now rising to match this boom.
So What’s Next?
Normally, I don’t advise borrowers to fix their rates. That’s because nine out of ten times when you do variable, you save money compared to the fixed rates. It also gives you more flexibility to refinance, which is an important part of your strategy if you have the goal of creating a long-term investment portfolio that you can retire on.
But this is the one time I would say you might want to fix your rates now. Maybe the rates will go up. Probably at the end of 2022. So, I won’t sweat it until it happens.
The point is when the interest rate hike comes, they’ll come slow and small. They won’t come in thick and fast. But make no mistake – the fixed-rate hike has already started.
Protect Yourself Against The Coming Storm
Cheap money will not last forever. Things will change, and sooner than you might think. And if you continue to keep money in the bank, it will lose value when interest rates go up. The value of $100 today will only get you to $75 in a year or two.
It’s a slow-building storm. And I don’t want to see your money wiped out by inflation and rising interest rates. Not while I know that you can invest in real assets that will grow in value as interest rates go up. You can take advantage of the storm and build real wealth.
How? By investing in an asset that only rises in value: property. I’m talking about good properties in desirable suburbs that have high demand and low supply. Properties like that will double in value in the next 10 years, while the value of cash in the bank will shrink.
So, now you have to choose which side you want to be on. You can choose to lose money by keeping it in the bank, or you can invest in growth assets.
But if you choose to invest in property, then you’ve got to know what you are doing. That’s why we have a 14 day challenge to help people who want to create their own Blueprint for investing in property.
Over 14 days, participants hear from the experts and learn from me how to develop your plan, fix your credit, look good for the banks,
organise your tax structure, choose the right property, set yourself up for 5-10 properties (instead of getting stuck at 1), and much more.
The Challenge helps you get educated and create an informed plan for getting your first, second, third and beyond cash flow positive investment properties.
It’s a great way to get your ducks in a row and start on your path to becoming a property investor in a safe and steady way.
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If you’re interested in finding out more, go visit this link to check it out.