What Happens if Interest Rates Rise?
Demand for Rental Properties Can Increase
A rise in interest rates means many potential homebuyers can no longer afford to purchase a home for themselves so they are forced to rent a property instead.
Rents Can Increase
- As demand for rental properties increases rents can also increase; and
- As interest rates rise many investors try to recoup their increase cost (mortgage payments) by increasing the rent they charge for their Investment Property.
Property Prices Can Increase
- A rise in interest rates puts upward pressure on inflation; the higher the rate of inflation the higher the average increase in property values;
- An increase in rental income tends to increase the value of a property; and
- An increased in demand for rental properties also tends to increase the value of property.
Historically a Rise in Interest Rates has Been
- Good News for Property Investors; and
- Bad News for Owner Occupiers with Mortgages.
How Much Do My Repayments Go Up
Based on an interest only loan of $350,000 a rise in interest rates will have the following effect on your weekly repayments;
| Rate Rise | Additional Interest | Marginal Tax Rate | Extra After Tax Cost |
| 0.25% | $875.00 pa | 46.5% | $9.00 / wk |
| 41.5% | $9.84 / wk | ||
| 31.5% | $11.53 / wk | ||
| 16.5% | $14.05 / wk | ||
| 0.00% | $16.83 / wk | ||
| 0.50% | $1,750.00 pa | 46.5% | $18.00 / wk |
| 41.5% | $19.69 / wk | ||
| 31.5% | $23.05 / wk | ||
| 16.5% | $28.10 / wk | ||
| 0.00% | $33.65 / wk | ||
| 0.75% | $2,625.00 pa | 46.5% | $27.01 / wk |
| 41.5% | $29.53 / wk | ||
| 31.5% | $34.58 / wk | ||
| 16.5% | $42.15 / wk | ||
| 0.00% | $50.48 / wk | ||
| 1.00% | $3,500.00 pa | 46.5% | $36.01 / wk |
| 41.5% | $39.38 / wk | ||
| 31.5% | $46.11 / wk | ||
| 16.5% | $56.20 / wk | ||
| 0.00% | $67.31 / wk | ||
Note:
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The 'Marginal Tax Rate' includes the Medicare levy
-
The 'Extra After Tax Cost' is the net additional interest payable per week after tax