Here is an update on residential investment current interest rates. Did the major banks pass on the 0.25% on all lending products?
Fortunately for the most important ones for my clients they did, but not all.
Most of my clients borrow principal and interest and that rate has dropped from 4.9% to 4.65%.
For interest only, that rate has dropped from 5% to 4.75% on loans between $250 000 and $750 000 and from 4.95% to 4.70% for loans over $750 000.
The products that did not get a rate reduction were the rates where we lock a rate in for up to 5 years – all stayed the same.
An example
If you borrowed principal and interest and locked in for 5 years the rate is still 4.74%, which is still very good when you consider the variable rate at the moment is 4.65%.
Residential investment interest only in arrears for say 5 years stayed the same at 4.84%, which is still a good deal.
To make this more meaningful here are some examples.
On one of my executive 5 bedroom homes at North Harbour Brisbane for $497,950, to be consistent we will work on a rent of $480 per week and a client in the $80-$180k tax bracket.
If they borrowed 100% using equity in an existing property, borrowed principal and interest at 4.65% what would their net weekly contribution be?
Only $154 per week and this is based on very conservative figures.
The same deal on 10% deposit is only $97 per week.
Borrowing 100% interest only in arrears, locked in for 5 years, works out at $11 per week, but that is after allowing $50 per week for contingencies.
To sum up
- Borrow 100% Principal and Interest-Variable-net contribution $154 per week
- Borrow 90% Principal and Interest – Variable -net contribution $97 per week
- Borrow 100% Interest only in arrears – net contribution $11 per week
Related Reading
to-restrict-advantages-of-negative-gearing/”>Labor Party to Restrict Advantages of Negative Gearing
Negative Gearing
I am still concerned about changes to negative gearing if the Australian Labor Party get in at the Federal Election, but they have promised that their policy will not be retrospective.
Which means that if you have a negatively geared residential investment before the election you will enjoy the current rules.
If you have any questions about the current interest rates or negative gearing and are interested in enquiring about buying property to start your Residential Property Portfolio, please contact our office to schedule a free, no-obligation consultation.
Steve Taylor
At the helm of Steve Taylor & Partners, Steve Taylor has been delivering expert advice and product knowledge to clients for over 30 years. Steve Taylor & Partners provide individuals, couples and families with the right strategies to create wealth and change their lives with solid bricks and mortar.
DISCLAIMER
Steve Taylor & Partners blog is opinion and not advice. Readers should seek their own professional advice on the subject being discussed.