This may seem like a stupid thing to say, but it’s true. I make this claim because of the very, very low interest rates we are currently paying to buy property.
The cost of buying a property is not just it’s price tag and purchase costs (unless you’re paying cash). The real cost of a property is the price plus the cost of the money you borrow to buy it. That is, the amount you borrow and the cost of the interest that goes with those borrowings.
The past ten years has seen the cost of borrowing money, otherwise known as interest steadily reducing. Now we have some home loan rates around 2.50%.
Here’s the proof
Hypothetically assume you borrow $400,000 to buy a $400,000 property. You have a normal principal & interest home loan which you pay back at required payments over 30 years. The table below shows the total loan repayments at varying interest rates.
Buying that property today at 2.50%, you pay back $568,974. This is 1.42 times the amount you borrowed, including $168,974 of interest. But, look how much extra you pay back when rates are higher. At 5.00% you pay back $773,023 which is $204,049 MORE than now.
Back in late 2011 when rates were around 7%, you’d pay back 2.4 times the cost of the loan. This includes a staggering $558,036 worth of interest.
So, when I say property is cheap to buy now if you borrow to purchase it, there’s the proof. See our Loan Calculator to check your numbers.
The take away for all homeowners with loans.-‘Now is the best chance you will ever get to pay your loan off quickly. Make the most of the current times’.