Tip – Start with a lower priced property.
It is much easier for a lower priced property to increase in value by say 10% than a more expensive property. Lets say you buy a property for $250,000 – you paint, polish the floor boards, tart up the kitchen, a little landscaping and you have added at least the cost of the work to the value of the property and likely more. You only need the value to increase to $275,000 and you have a 10% capital growth. It is much harder to have a higher price property increase by that amount. ($1 million property will need to increase by $100,000.)
The gap between variable and fixed rates has narrowed considerably, after three of the big four slashed up to 45 basis points from their fixed rate mortgages.
According to a recent report by Canstar Cannex, only 16 basis points, on average, now separates the two loan types – the equivalent of $26 per month on a $250,000 home loan.
“Following the RBA’s cash rate increases, fixed and variable are now almost sitting at parity,” Canstar Cannex financial analyst Mitchell Watson said.
“Borrowers could see this as an opportunity to reduce the risk of fixing but they need to be aware that fixing a home loan is a long-term decision and very much a gamble, so it really does depend on your own individual circumstances.”
While Mr Watson said fixed rates were currently very attractive to home owners, borrowers were better off riding the variable wave, especially because the RBA has already indicated that another rate hike is unlikely next month.
In the minutes of the last Board meeting, the RBA all but confirmed it would keep the official cash rate on hold until at least August.
The Adviser Wednesday, 23 June 2010
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