The interest rate at the bottom
Now that the Good Finance has reduced the repo rate to zero and the banks have changed their interest rates, we are at extremely low interest rates. In all likelihood, none of us will ever participate in lower interest rates than they currently are.
Sure they can go down with a little more but then we talk very small changes. It is therefore easiest to expect that the current level will be the lowest we will experience. As I write this, a number of lenders have an interest rate on their floating mortgages of 2.15%, which is not much.
Plan properly for the future
Must say that unfortunately I am a little worried about these low levels as there are very many who do not plan properly for the future. Of course, the Good Finance says that they do not expect to raise the repo rate in the near future, but we are still talking about a relatively short time when it comes to mortgages. The perspective when borrowing cannot just be a few years ahead.
When I lent to my house, the basic tip was to expect at least 6% in interest and to make sure the economy was doing well. This figure I thought was low so I counted 8% instead of being a little safer. These are levels that are almost 3 – 4 times the current interest rate. How many people are now borrowing but not counting in this way at all?
My concern is that many people do not think this way
At all and thus run the risk of having problems in the future when interest rates go up. For up, it will go with the utmost security. 2 million in loans with 2.15% in interest costs about USD 3,600 a month. An interest rate level of 5% that is fully reasonable and even likely will cost USD 8,300 per month for the same interest rate level. Thus, this is almost USD 5,000 more each month that only has to be paid in interest. Then, of course, there is of course amortization that is the same regardless.
Not many of us would incur an increased cost of USD 5,000 every month without problems. If this increase is not taken into account, the risks are very large for serious problems. Therefore, the tip is to always think about the future when you borrow money.
A negative thing with lower interest rates
Is that the house price has a tendency to go up as people can borrow more and thus compete more. So this could very well make people borrow even more which only increases the risks.
Although the newspapers now write that the interest rate is very low and you save money on this, you should not be too happy.
Anyone who already owns an accommodation and pays interest on this, while there are no plans at all to move, obviously wins at a lower interest rate. But those who are going to buy a home are not at all clear on that. But the newspapers do not want to put it in their headlines as it does not sell as well.