How to Make Your Money Work Harder for You - May 2021
By Guest Blogger, Louisa Sanghera, Principal Broker,
Interest rate vs. loan amount – which is more important?
Most people are aware that mortgage interest rates are now the lowest they’ve been in decades. They’re definitely the lowest they’ve ever been in my 30+ year career as a finance broker.
What many borrowers may not be aware of is the fact that right now, with interest rates this cheap, it could be possible to borrow more than you would have been eligible for in the past.
Why does this matter to you? Well, it means you may be able to afford a bigger home, or you may be able to leverage your money further for an investment property to grow wealth for your future.
Here’s how it works…
Borrowing to maximise your financial position
When you apply for a new home loan or refinance your existing mortgage, most people are looking for the cheapest possible interest rate.
But that’s not the only important factor.
The other big one is the loan amount – and when I’m talking to new clients, I often suggest they don’t focus purely on the interest rate when comparing loans. Instead, they should consider the total balance of borrowing they can achieve, and how this could help them reach their goals.
The real question borrowers need to ask is: should we seek to apply for the maximum amount we can borrow in this current property market, so we can take advantage of low interest rates?
The answer to this question really depends on your personal situation, but I want to share some of the risks and rewards of this strategy.
The reward is fairly clear: if you leverage your money well to get into the market, then over time, and are likely to enjoy property price growth. If you own your own home and one or two investment properties, this could put you in a great position to create wealth for your future.
The way house priced have increased historically, you should make money – the keyword there being should. There are no guarantees.
There are risks with this strategy, especially if you don’t have a lot of money to play with as a deposit. If you borrow 90-95% in the current crazy market, and the market cools down, you could end up with negative equity (where the house is worth less than your mortgage).
For this reason, it’s generally advisable to buy property as a longer-term strategy, so you have “time in the market” to weather the ups and downs.
Remember: what is your end goal?
When working out how much to borrow and setting up the right loan structure, the most important thing to consider is your end goal.
It might be getting the cheapest possible interest rate, or accessing equity to renovate, or investing in property to work towards future wealth.
Everyone’s needs are different, which is why the right lending solution for you is so personal. There are risks and rewards of each strategy, and by working with a mortgage broker, you can talk through the benefits and drawbacks of each different scenario, so you can make the best decision to suit you.
One thing we are seeing in the industry is a definite uptick in the number of borrowers who are taking advantage of current lending conditions. People are aware that rates are low, with some deals available in the 1% range, so they are shopping around more and reviewing their mortgages more often.
The added flexibility of being able to switch lenders more easily now than ever before is also boosting activity, and we’re finding that cash backs offers are very appealing to some clients. We’ve had clients use the cashback to pay off credit debt, or use it to offset their mortgage from day one. Cashback offers of up to $4000 are available, so if this might interest you, contact your broker to see if you’re eligible.
If you’re considering refinancing, are shopping for a new loan or just want to see what the market has to offer, contact your broker for a chat, so they can see if you can save money with a better deal on your mortgage.
Louisa Sanghera - Director and Principal Award-Winning mortgage broker at Zippy Financial
Louisa created Zippy Financial after a 25-year career in banking, with the goal of using her expert financial knowledge, vision for exceptional customer service and passion for property to help her clients grow their wealth through smart property financing. Whether you are looking to buy your first home, re-finance or build your property investment portfolio, Louisa and her team of experienced brokers can help guide you through the challenging maze of finding & securing exactly the right loan for you.
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