Money Glee Monday #53 - Do interest rates matter?

Let's look at the question on everyone's lips, do interest rates matter?

When you ask that question, it's not exactly the greatest question, the question you'd probably want to consider, do interest rates matter to me? While they probably matter to large financial institutions, governments and other corporate entities, they may not matter to you as much as you'd think.

It's important to be clear though and say that it will depend entirely on your situation though. We'll run through a quick scenario based on a basic example:

We'll make the below assumptions, which are highly unlikely to be specific to you so as always speak to your finance expert.

Assumed the mortgage is 300k principle and interest over 25 years at 5% for the first loan which is for a property you will live in

Results in repayments of 800$ a fortnight, with total interest repayments of approximately 225k

The same scenario except 300k principle and interest over 25 years at 6% for a property you will live in

Results in repayments of 892$ a fortnight, with total interest repayments of approximately 279k, or an extra 90 odd $ a fortnight which adds up to over 70k in extra interest.

Looking at this then, you would think straight away that yes interest rates do matter. Interest rates may matter to you where:

  • You are not purchasing the property for investing purposes, which will mean there is no rental income coming in
  • You do not have a significant emergency fund, which means that an increase or extra interest repayments can be the difference between you being able to afford the property or not. 
  • (Insert misc factor here) that could be affecting your financial life that we're not aware of

If the above aren't affecting you and you are considering purchasing the asset for investment purposes it may not make a significant difference if the rate is higher, if it means you can't invest.

Keep in mind that you must check with a mortgage professional, who'll be able to advise on structuring and strategy for the loan. 

Charting the interest rate game can be a challenge for even the most seasoned professional

Charting the interest rate game can be a challenge for even the most seasoned professional

What are your thoughts on if interest rates make that much difference to your financial future?

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