How do you calculate interest

[noodles]

When calculating interest, do you use the current market rate or a historical average rate?

 

[Rixter]

I use the rate (post negotiated discount) I'm getting from my respective banks.

 

[Corey Batt]

I use the rate (post negotiated discount) I'm getting from my respective banks.

This. This is the real *real* figure which shows the current performance of the portfolio. If then wanting to stress test the portfolio, I will adjust the interest to the running average of circa 7.5%.

Muddling figures from the start can skew the reality of your investments, but it is prudent to factor in how your portfolio will react to a higher rate environment.

 

[Rixter]

This. This is the real *real* figure which shows the current performance of the portfolio. If then wanting to stress test the portfolio, I will adjust the interest to the running average of circa 7.5%.

Is it true in General terms +2% P&I is what most lenders factor in relation to dsr calculations apart from all the other usual considerations?

 

[Corey Batt]

Is it true in General terms +2% P&I is what most lenders factor in relation to dsr calculations apart from all the other usual considerations?

It really does depend on the lender, but that's the fairly accurate for purchases across the board with lenders.. The conservative lenders will look at servicing across all loans at ~+2% P&I, if you have IO they will remove the IO period and calculate off that - 25yr P&I 7%+. Quickly servicing dries up with multiple properties.

High servicing lenders will take other financial institutions debt at actual repayments.

The reality is that an IP with interest of $2000 a month and $2500 per month rent, may be calculated as having repayments of $4000 per month and rent of $2000.

 

[Redom]

When calculating interest, do you use the current market rate or a historical average rate?

For the now, I just use the interest rate i'm being charged x loan amount.

When i'm doing stress testing, I use a 1.5-2% increase from the current rate (around 6.5-7%). Could be prudent to do it a 7.5-8% depending on risk tolerance, etc.

Cheers,
Redom

 

[Jamie M]

For my own budgeting I use a 7% rate (roughly use 2% higher than current). I tell clients to use similar when we're looking at their affordability.

Cheers

Jamie

 

[Peter_Tersteeg]

When calculating interest, do you use the current market rate or a historical average rate?

What are you actually trying to determine?

If it's your cash flow today, use current rates.

If it's risk mitigation, use current rates plus about 2%. In the time taken for rates to climb that much you'll be able to make adjustments to compensate and mitigate them increasing further.

 

[noodles]

What are you actually trying to determine?

I'm trying to get into property investing for the first time. Our plans may change, but for now it's to buy positive cash flow properties.

If it's risk mitigation, use current rates plus about 2%. In the time taken for rates to climb that much you'll be able to make adjustments to compensate and mitigate them increasing further.

It sounds like we should forecast for today, and risk mitigation of current rate + 2%

Any other considerations?

 

[Paul@PFI]

Try the PIA software available at the SS homepage. Trial then buy a single license. It will do all the calcs.