What If Interest Rates Rise?
There are a few issues here. Basically you were assessed by your lender at (usually) around 1-2% higher than the interest rate at the time you took out your loan. This gives your lender some confidence that you will still be able to pay your investment loan at a much higher rate.
The second point to consider with investment loans is that your ‘losses’ through negative gearing are tax deductable. If you are on the top marginal rate and your loan payments increase by $50 per month, then your tax relief will increase by around $24 per month meaning that you only have to find around half of the rise after tax. His is a very different scenario to your personal home loan which is not tax deductible. If your home loan increase by $50 per month and you are on the top marginal rate, then you would have to earn around another $100 per month before tax to pay for the $50 increase!
Correct structuring of your investment loans for your investment property will ensure that you have a”safety net’ for such eventualities as interest rate rises. This is when working with experienced and reputable companies like Lime Property Solutions can make a big difference.
Just as a last thought. We’ve been asking clients with this question “What if Interest Rates go up?”since 2008 to consider “What if interest rates go down?” It’s not often considered by prospective first buyers of investment property but we have only seen decreasing rates since the last quarter of 2008 and at time of writing it is half way through 2016!
