What to do with interest rates

Clients and friends constantly ask me about my thoughts on interest rates, especially at the moment, with rates on the increase.

To be really frank with you, my thoughts are: get over it and get on with it! The way I see it, interest rates are just a cost of doing business, so don’t give it too much energy or allow it to consume you. If you are that worried about interest rates, then you shouldn’t bother investing! Remember the days of 17% interest rates? I do, like it was yesterday.

“The recession that we had to have”, according to Mr Keating, are words that have been engraved in my mind for the rest of my life.

I worked in an office by day and washed dishes and wiped tables until midnight, and then repeated the process the very next day. On weekends, I did split shifts at the restaurant and worked until 3am. I did this for months to make the payments on our swollen home loan.

So, when it comes to the impact of interest rates, I think I have a fairly good appreciation. Did I let interest rates stop me from investing? Absolutely not! As an investor myself, I see interest rates as part and parcel of growing my wealth, and so I factor it into my calculations even before buying – so when they do go up (which they inevitably do), I don’t need to worry.

I have experienced interest rates at 17%, and it was only a few short years ago that I fixed many of my mortgages for 5.99% for five years. My view is that if you were to average out interest rates over recent years, 8.5% would be about the mark. So if you are paying equal to or less than 8.5% then you are ahead of the game. If you are paying more, however, then you should have a look at your mortgage lenders.

For example, I have several loans with a finance company, which are the most expensive loans I have. Now, I don’t mind paying a little more if I am getting great service, but customer service with these guys is basically non-existent, and it really bugs me. I don’t mind paying more for things, provided I get the service when I need it, but in this case, I’m not. So my goal for 2008 is to refinance these loans with more customer-focused lenders.

Investors who lose sleep over climbing interest rates should try fixing part or all of your loan/s, to give you peace of mind that your repayments are regulated.

Also, if you are really concerned about rising rates, you could increase your rents to help cover the increased mortgage repayment – it’s not that hard. Many landlords are guilty of not putting up the rent regularly enough, and I hear things like, “I’ve had this tenant for four years”… but does that mean you should reward them for their loyalty by effectively giving away $100 per week?

Folks, it’s your money, but come on – you are working hard to pay someone else to enjoy your investment. The point of purchasing investment properties is to grow our wealth, not give it away. If you’re feeling charitable, give the hundred bucks to charity instead – I’m sure they will appreciate it more. Plus, the taxman allows it as a deduction.

Here’s my tip:

If you are going to fix your interest rate, just be careful of lenders who are asking for an upfront fee to secure the fixed rate for you. Sometimes the fee can be more than what you would save on the interest payment, so please double check your numbers.

Until next time, happy investing.

Helen Collier-Kogtevs

www.realwealthaustralia.com.au/

PS. If you want to learn more about the trappings of investing, pick up a copy of my latest book, 47 Biggest Mistakes Made by Property Investors and How to Avoid Them.