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From: Mike .
When is a 1% increase NOT a 1% increase ???
From: Les
Date: 6/4/00
Time: 11:39:43 AM
G'day forum,
We have all watched as Interest Rates have started on their upward march. As one who has not yet Fixed my Interest rates, (the water's getting warmer, but this frog is not yet ready to jump out !!!), I have been watching my positive cashflow being eroded - at what seemed to be a MUCH FASTER rate than a 1% increase would suggest.
And then it hit me - of course, the 1% rise (over the last 6 months) is really NOT a 1% rise at all !!!!
For those newer ones (like myself) who have not already worked this out, let me explain:-
As an example, let me take the case of an investor taking out a mortgage at 6% - on a $200,000 loan, that would be $12,000 per year. With a 1% increase, he is now paying $14,000 per year. Of course, the REAL increase (in repayments) depends on what you were paying before, so in this example, the increase is $2,000 divided by $12,000 which is 16.66% !!!!!!!!
At the same time, tenants would likely WALK (or run???) if we were to hit them with a 16% increase (from $200 to $233 per week !!!).
So, if you are feeling the heat, I understand !! Maybe it's time to negotiate an 8% drop by refinancing at 0.5% lower ;^)
For those still on Variable (like me) are you "sticking with it?" I still don't see a huge jump into the future with the world of the Internet keeping competition up and costs low. But oil prices, or global upheavals can still have their effect .....
Also, at the time I bought my first IP's it would have cost 7.85% to go Fixed, while my Variable is now at 7.55% (after a 1% rise - REALLY 15% ) - so I'm still on the winning side.
And still sleeping at night ;^) - so far !!
Regards, Les
When is a 1% increase NOT a 1% increase ???
From: Les
Date: 6/4/00
Time: 11:39:43 AM
G'day forum,
We have all watched as Interest Rates have started on their upward march. As one who has not yet Fixed my Interest rates, (the water's getting warmer, but this frog is not yet ready to jump out !!!), I have been watching my positive cashflow being eroded - at what seemed to be a MUCH FASTER rate than a 1% increase would suggest.
And then it hit me - of course, the 1% rise (over the last 6 months) is really NOT a 1% rise at all !!!!
For those newer ones (like myself) who have not already worked this out, let me explain:-
As an example, let me take the case of an investor taking out a mortgage at 6% - on a $200,000 loan, that would be $12,000 per year. With a 1% increase, he is now paying $14,000 per year. Of course, the REAL increase (in repayments) depends on what you were paying before, so in this example, the increase is $2,000 divided by $12,000 which is 16.66% !!!!!!!!
At the same time, tenants would likely WALK (or run???) if we were to hit them with a 16% increase (from $200 to $233 per week !!!).
So, if you are feeling the heat, I understand !! Maybe it's time to negotiate an 8% drop by refinancing at 0.5% lower ;^)
For those still on Variable (like me) are you "sticking with it?" I still don't see a huge jump into the future with the world of the Internet keeping competition up and costs low. But oil prices, or global upheavals can still have their effect .....
Also, at the time I bought my first IP's it would have cost 7.85% to go Fixed, while my Variable is now at 7.55% (after a 1% rise - REALLY 15% ) - so I'm still on the winning side.
And still sleeping at night ;^) - so far !!
Regards, Les
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