Official interest rates might be sitting pretty for the time being, but as funding costs soar across the home loan market, lenders are starting to pass on the increase to customers.
Recent reports have highlighted the additional pressure felt by the Big Four banks and their smaller counterparts, as they struggle under the weight of a spike in short-term funding costs of around 60 basis points.
Last month, AMP and Auswide Bank lifted rates on all new Interest Only loan products by as much as 40 basis points.
Experts suggest the only thing delaying the Big 4 from moving on “out of cycle” rate hikes is the unflattering publicity they can ill afford, in light of damning witness testimonial coming out of the the ongoing Royal Commission into the financial services sector.
However, many analysts are forecasting a potential run of interest rate increases to be instigated by the banks, beginning in September.
Are you prepared?
With investors already paying premiums on borrowings, if you haven’t yet started to explore ways of consolidating your debt portfolio, now is the time to get pro-active about reducing those loan obligations wherever possible.
At Trilogy Funding, we actively encourage and work with clients to maximise the flexibility of their loan structures, whilst minimising the capital tied up across their mortgages.
Here are three insider techniques we use to reduce our clients’ investment debt, leaving them in a stronger cash flow position.
1. Use your equity wisely
A stronger capital position when applying for your home loan, often means the potential to negotiate and obtain special discounted rates. If you’re looking at borrowing with a Loan to Value Ratio (LVR) under 70 per cent for instance, Macquarie Bank will apply a lower interest rate to your mortgage.
You might also consider depositing any additional, “rainy day” capital into some type of offset account(s) linked to one or more of your loans, thereby reducing the principal and in turn, interest charges.
2. To fix, or not to fix?
Trilogy Funding currently has the opportunity to secure attractive fixed rate specials, specifically for our investor borrowers, through NAB, CBA and ANZ.
In terms of reducing and servicing your property investment debt, the benefits of a low, fixed repayment amount are undeniable.
To begin with, your finances will fluctuate less month to month, thereby providing greater certainty around your cashflow forecasting and additional peace of mind. You can also acquire some breathing space, structuring your finances so that any savings are invested in an offset account or similar facility, providing you with a solid cashflow buffer.
Not to mention the additional serviceability appeal you’ll hold for future lenders, as you effectively reduce and make your debt more manageable, all at once.
Of course if you’re not comfortable fixing your entire investment debt and potentially tying yourself up in a complicated structure that could constrain the future growth of your portray portfolio, you can talk to us about apportioning your repayments across both fixed and variable products.
3. Don’t rely on interest only
Logically, if you rely on IO loans rather than paying some off the principal as well, you’ll have a more significant debt for longer. Whereas P & I repayments will see you reduce your credit exposure and obtain more control over your capital position.
Interest Only loan products are often the first to be targeted when it comes to retail rate hikes as well, so an IO loan leaves you at greater risk of future rises on your mortgage repayments. It might seem like you’re saving money in the short term, but property investment and debt portfolio structuring should be more of a planned, long term affair.
If you would like assistance in planning and preparation for future rate changes, and to consolidate and strengthen your borrowing position, why not contact the team here at Trilogy Funding? We put our client’s needs first, making your future dreams and financial goals our focus.