Whether rates go up or down, our actions determine the outcome.

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There’s this very interesting article in thestar.com.my Briefly, it says that economists presumes that when interest rates are down, households will borrow more to spend on houses, cars and themselves. It meant the consumption goes up and thus this will help in economic growth numbers. However, if low interest rates are continuous for a very long time, it may hurt the poor and the vulnerable. This is because these people may already be in debt and there may not be growth in wages and the economy is slowing.

By the way, central banks in the world has started cutting rates. Whether it’s Federal Reserve of the US or our very own Bank Negara Malaysia too. More cuts are expected next year. The reason is so that businesses would take advantage of lower rates to invest more into their businesses. There’s only one issue. The trade war between the US and China is dampening the willingness to invest amidst uncertainty. Let’s hope both will patch up soon. As for the full article with lots of other opinions, please read it in thestasr.com.my here.

Let me remind everyone that interest rates up or down, unless if it’s a super duper up or down should not affect our decision to invest or not to invest. it should be grounded to our due diligence on the potential returns instead. Yes, I understand that when times are uncertain, it’s hard to buy. Well, it’s a trade-off right? When times are good, one has to pay much higher to acquire the same kind of investment! So, if we have decided that property is meeting all our requirements but we are worried about that 1% interest rate up next year, we are not thinking objectively yeah.

If we are buying a property for RM400,000 today and we put down a 10% downpayment and a loan period of 30 years plus an interest rate of 4.5%, we are looking at mortgage payment of RM1,824 per month. What happens when the rates have a 0.5% up next year? We will need to pay the below. RM1,933. The difference per month? RM109. Now do we understand why we should NOT overstretch ourselves? If we did not, handling RM109 per month is going to be pretty easy. Happy thinking yeah.

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written on 29 Aug 2019

<Featured Image is courtesy of Stock Photos from Creative Images>

Next suggested article: 10 reasons why we will fail to buy a property

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