Key Financial Ratios You Should Know – Interest Cover


Louise Misiewicz

Tax Consultant

7th May 2014

Posted by Simon Misiewicz on 7th May 2014

Are you worrying about interest rates rising on your mortgages?

Are your “Return On Investments” causing you a pain?

The Diagnosis

As you know, mortgage interest rates can increase and decrease over time. We make more money as interest rates fall and make less money when they increase.

Which way do you think mortgage interest rates will go in the next three years? How much of a pain will this be to your profit making investments?

The Treatment

There are many ways to ensure that you make more money from property and to safeguard yourself from interest rates fluctuating. I am going to describe a few of them here:

• Fix the rates if they are low
• Change mortgage provider to get a lower rate
• Pay off your loan

Fix the rates if they are low

I would always look to fix rates wherever possible when mortgage rates are low. You may pay more than variable rates in the short term but at least you will safe guard against large interest rate fluctuations.

Change mortgage provider to get a lower rate

Have you seen the adverts for getting cheaper car insurance on the television? You may get an annoying headache by the frequency. However they do have an interesting point.

If you shop around by using a decent mortgage broker then you may be surprised to know that you could be paying too much interest. In many instances we have reviewed interest costs with our clients and advised them that there may be an opportunity to decrease them. Therefore they are making more money in the portfolio.

Pay off your loan

The bigger the loan the more money you will pay in mortgage interest.

We may not be able to reduce interest rates by willpower but we can reduce interest charges if we reduce debt. There are many property investors that pay off debt once interest rates increase.

If we have less debt, then we have less risk of interest rates increasing and thereby turning a profit into a loss.

Applying the treatment

Now that I have shared some of the techniques of increasing ROI by managing interest rates, it is over to you to book a call with your mortgage broker to see what they can do to help.

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