Wednesday 7 November 2007

Rate Increase Hits Hip Pocket

The Reserve Bank of Australia raised the official cash rate by 0.25 percentage points to 6.75 per cent this morning, for the first time ever during a federal election campaign.

Personally, this won't have a huge impact on my hip pocket. My half of our property mortgages is currently $363,152 but around 1/3 ($118,949) is at on a fixed rate for the next several years. The interest rate charged on the remaining $244,203 variable rate loan will probably go up by the full 0.25% almost immediately. This will result in my paying extra $50.88 per month in interest.

It is widely predicted that the rate rise will dampen demand for loans by first home buyers and prolong the slump in new home construction. This should be good for us in the medium term as there is already considerable undersupply of housing (due to high rates of immigration and a recent up tick in the birth rate) which will help lift rentral yields above the current rate of around 10% increase pa and reduce vacancy rates even further. This should allow us to recoup most of this cost increase when do our annual rent review early next year.

Copyright Enough Wealth 2007

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