The majority of home sales in Australia are supported through the borrowing of money from banks or mortgage lenders. This close relationship means that the domestic building industry is often affected by changes to interest rates.
What are interest rates?
Interest rates are basically taxes designed by the lender in order for the borrower to get a home loan. This is usually determined through a percentage on the total amount loaned. The higher the rate, the more money a borrower must pay in the form of interest on the loan. The RBA sets a rate at which it lends money to the bank and then they determine if they will pass it down to individual borrowers. They can be fixed or variable. Variable Interest Rates may go up and down over the time you have the loan, whereas Fixed Interest Rates remain the same.
Why are they significant?
When interest rates are low, people are more likely to borrow money, because the money they have to pay back is significantly less. In contrast, when interest rates are higher, borrowing becomes more expensive and it lags as a result.
Why is property such a good investment?
According to Michael Yardley, the director of Metropole Property Strategists, investing in residential property is a more stable investment than stocks and shares, because of their greater capacity for future capital growth. A recent report released by Russell Investments recorded that over the last 20 years Australia’s residential real estate grew by 9.95 percent on average.
For more information regarding what you can afford given your income and current interest rate, contact Mortgage Search.