The Reserve Bank of Australia just announced that Australia’s official interest will be SLASHED by 1.00%.

Most of the Analysts (read Pundits) were expecting a drop of around 0.5%.

Assuming that the Banks in their wisdom decide to pass this rate cut to us - mere mortals, what does this mean to you?

For First Home Buyers:

$300,000 home - with a $14,000 Grant (or $21,000 - if you are buying / building a brand new home) will set you back - $373 per week (principal & interest). The housing market is getting more and more affordable. However, with more affordability comes more demand and hopefully (well not for you though) property price increases.

2009 will be an interesting year because of all this uncertainity, most Propety Investment Gurus are not willing to openly predict where the market will go in the next 12 months.

Probably the biggest challenge for First Home buyers is the sudden disappearance of 100% loans from the market. Many banks, including Commonwealth has pulled out of this market - as they want to be more “careful”. There is probably only a handful banks / financial institutions who are willing to do a 100% loan for the first home buyer. You will need to look around and carefully do your analysis. If you require any help in this matter, please do not hesitate to call.

For Investors:

Most investors, who are holding on to old stock should see their cashflow turning positive. However, this may not be what you want, as the property becomes positively geared then that means your tax benefits will reduce. You will need to re-evaluate your portfolio to maximise cashflow, capital growth and tax benefits. If you need any help to do this, please let me know and I will guide you to the right people.

Current Home Owners:

Sit tight! Keep paying your mortgage - if you can at a higher level - I have recommended some of my clients to keep paying their home loan at the 7.5 - 8% level - just because they could and that means they will pay their home loan off much quicker than the average home owner.

The other option is, if you are looking at capitalizing on the market, then look at investing in property.

Just a word of caution

DON’T go and talk and try to get advice from your neighbour or uncle or grandpa who has never done any investing. Please DO your research, read a lot of books on the subject and talk to people who are successful in property investing. If you want some references, please contact me and I will get you in touch with some of my mentors, who are doing great things.

Variable Rates on the Way up -

Is it a Good time to Fix your Interest Rates?

As of Friday, 18/07/08, the last of the major banks, Westpac, has increased their variable rates. This decision was made solely by the banks - and not by the Reserve Bank of Australia.

This is unfortunately because the market is getting extremely challenging and Money is getting very expensive !! - Even for them - so they pass it on to you - the people who borrow money.

PS: Most banks have done this ’stealth’ increase mostly on a Friday - so that they don’t get hammered by the Press and the Public. Well that obvioulsy has worked in their favour - as this information was not highly publicised. I was not suprised when a lot of my clients did not even know that their rates had gone up, until they received an email me advising that it had happened.

You will definitely see a knock-on effect of increases in Credit Cards, Personal Loans & Car Loans.

I have sort of given an approximate breakdown of the Standard Variable Rates for the major banks below in the table. These rates are as of today (21/07/08) and are subject to change without notice - as we have already seen!

The Propack, 3 year fixed and 5 year fixed rates are based on a $350,000 loan taken by a client.

A lot of my clients have asked me what Standard Variable Rates (SVR) mean - A simple way to explain is like when you walk into a Hotel and ask what their room rates are for a ‘ocean view - 2 bed room’ unit is - The clerk behind the counter will usually quote you a ‘Rack-rate’ - This is a standard rate that the hotels will like to rent the rooms at - however - it is open for negotiation. So in the Bank’s point of view - the SVR is the ideal price at they will lend you the money at - however it can be negotiated down depending on the loan amount you take, the credit card, life insurance or other services you want - then they are happy (well not really) to bring the rates down.

As you can see, except for ANZ all the others have a similar 5 year Fixed rates or lower than their 3 year equivalent. This can mean 2 things:

1. Most banks except ANZ - think (at least for now) that the rates will be stable for now. OR

2. ANZ finds it too expensive for getting money for the 5 year period - hence they do not want to get any new business

Personally, my opinion is, I believe we will see at least another 2 rate rises - 1 before the year end and another by early 2009.

Disclaimer: This is my opinion - and the readers should do their own research and make an appropriate decision on whether to fix or not to fix their interest rates.

As we can see, the next 2 - 3 years are going to be very interesting - and I believe my Mortgage Planning service can be utilised to help you manage your money better and help you to pay off your home loans sooner.

I am sure you will have questions on how competitive your current interest rates are - as compared to what’s out there in the market - send me a quick email and I can look at your individual situation and find the most appropriate options.

Please add your thoughts / predictions on where you think that interest rates will be in about 12 months time and what your action steps will be to manage your predictions.