For the last few months our good friends (not), the banks, have been slowly pushing up the rates on fixed term loans and yes, you guessed it, all the other rates will probably follow in the very near future.

Remember this one? “If It Ain’t Broke, Don’t Fix It”. Here it is right here:

Banks have slammed shut record low rates on most fixed term loans already. Any that haven’t wound up yet, will very likely do so in the near future, along with record low variable interest rates, which are actually looking fairly shaky given the expected increases in loan funding costs for the banks. Anyone nervous yet? Anyone out there just pay way over the asking price for your property? If so, this is where the danger lies and you can get badly bitten. “Bewdy! The bank said we can afford to borrow $1M so let’s get that $1M luxury place we’ve always wanted. We’ve worked hard for it!” Rightio then. Let’s see here. What will the variable rates be when your fixed term expires? What do you do when your fixed loan expires and your repayments suddenly increase many hundreds, if not thousands of dollars per month? Ouch!! If you can’t afford it now, how will you afford it later? No good signing up to a fixed interest loan now when you can’t afford the repayments next year. Just buy a house you can afford now and that you can afford when interest rates rise, or when you come off the fixed interest period.

What does this mean for you and me? If you’ve been teaming up with your Buyers Agent to buy your property, then it probably doesn’t mean too much. You know, all those dollars over the asking price that the Real Estate Agent said would be a great deal for your new home? A good Buyers Agent would advise very strongly against you paying 10s of thousands of your hard earned dollars over the asking price for a property. Why is that? It’s because a good Buyers Agent knows very well that the short term joy will turn into many years of pain and suffering when interest rates start rising……… they are just about to do.

“Oh my! Now I wish I had followed Bob and Sandra’s lead and used a Buyers Agent to negotiate a reasonable price for my property and they’re already in their new home, while we’re still trudging the open home circuit every weekend with everyone else.”

Borrowers need to be very aware (and very wary) that banks have already estimated the loan funding cost rises and interest rate hikes into loans. They have teams of economists who do that all day. Repayments in that case, may very well rise significantly in the future.

I’m sure we all remember this!

Yeah, like the banks are ever on our side.

Certainly, with the market firing away on all 12 cylinders the way it is currently, there are gains to be made in the immediate future. One of our own clients chalked up around $50,000 the minute they walked in the front door of their off-market home. But tell me, what happens when we run out of immediate future? I’ll tell you, for all those who paid too much:

many years of pain and suffering.

OK, so let’s let the banks worry about the global bond markets. The important thing is, regardless of market conditions, you need to stay within your own financial boundaries. You need to discuss those boundaries with your broker, not the bank. Understand not only your boundaries, but also what happens when the banks start moving the boundaries for you and move them, they will.

If you’re like many people who are still trudging the open home circuit of vastly overpriced properties, stop trudging and call us here at PPBA. If nothing else, we’re happy to discuss the amount of trouble you can end up in if you try to out-negotiate the real estate agents who are trying to meet the demands of their voracious sellers.

Call now – 0490 020 801