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Interest rates fell from a peak of 17% in March 1990 to a bottom of 6.05% in April 2002. The dramatic drop over ten years indicates the cyclical nature of interest rates and how monetary policy is used to control spending in the economy.
The table below outlines how a movement in interest rates would effect weekly repayments on a $150,000 mortgage with a 25 year term:
|
At An Interest Rate Of |
Your Weekly Repayment |
Your Total Loan Repayment |
|---|---|---|
| 5% | $202.00 | $262,601.74 |
| 7% | $244.12 | $317,361.15 |
| 9% | $289.77 | $376,697.83 |
| 11% | $338.33 | $439,828.32 |
| 13% | $389.22 | $505,983.12 |
| 15% | $441.90 | $574,465.33 |
| 17% | $495.91 | $644,682.53 |
Sadly many investors buy without considering what stage interest rates are in the economic cycle.
Many investors don't realise that they may be buying at the bottom of the cycle and will not factor in the impact of a movement in interest rates on returns.
A positive cashflow property at 7% might turn into negative cashflow at 9%.
This can be disastrous if you're planning to fund your financial independence from your investment returns.
It's always important to manage your exposure to an unfavourable movement in interest rates.
You can do this by understanding how the economy impacts on housing prices, which you can source in a special "Investor's Briefing" when you refer a friend to this site.
