As a mortgage holder record low interest rates are nice however at the other end of the spectrum these extremely low rates are squeezing retirees.
How do you get your cash to last with rates of 1.4%- 2.5%?
The reserve bank feels that reducing interest rates will spur spending as those with mortgages have higher incomes and greater spending habits than those of retirees.
Are mortgage holders really going to spend that extra amount or just put it into their mortgage so that it is paid off faster?
There are statistics that the average mortgage is around $250,000 and average savings are $65,000 but does that take into account the millions in super stashed away?
In the last 5 years the RBA has reduced the cash rate from 4.75% to 1.5%. In that time term deposit rates have dropped from 6% to 2%, whereas home loan rates have dropped from 7.5% to 4.5%. Retirees and those with savings are being hit harder.
The banks are all estimating the rates to stay this way for at least a while longer with their 5 year rates being pretty much the same as 1 year.
Mortgage holders you need to get out there and make the most of this! Your parents will harp at you “in my day, I was paying 18%, so what are you complaining about”. Whilst that is true, it’s a very different market out there now with mortgages being more than 6 times salary.
For the older generation, this means tightening the belt, you can’t earn as much from your money so you have to spend less or find different investments that produce a greater return and accept the higher volatility. That’s really hard.
If you have any questions or wish to receive advice on investment options please let the staff at Ritchie Advice know we would be more than happy to sit down and work with you to determine exactly what options are available and how you will achieve your income requirements.
This advice may not be suitable to you because it contains general advice which does not take into consideration any of your personal circumstances. All strategies and information provided in this article is general advice only.
Ritchie Advice Pty Ltd ABN 12 150 128 448, is a Corporate Authorised Representative 408050 of Dover Financial Advisers Pty Ltd, Australian Financial Services Licensee No. 307248.
Erin Press
