Chris Childs

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Why Interest Rates Don’t Matter

Interest rates determine how much you are going to pay on a monthly basis for your mortgage, so they matter in that sense. What I mean by they don’t matter is that they are uncontrollable, and therefore I don’t stress about them at all.

However what the banks tell you may have you thinking otherwise. Let’s have a look at the bigger picture of packaging and profits.1/ Packaging. Banks’ tend to plaster interest rates all over their walls to encourage you to think it is the interest rate that is the most important thing to consider when getting a loan. They aren’t – because banks can change them at a whim, so usually, they offer a low-interest rate to lure you in and one-off loan set up fees which balance out the lower interest rate anyway.e.g. Saving .3% on a $350k loan amounts to $1050 over the year. Sounds great, doesn’t it? That is until add an application fee of $600 and a few other sneaky fees, which makes it work out just the same for the bank and you in the end. Or even worse they combine it with an annual fee of $395 for the ‘Special’ product.2/ Bait for a worse product. The interest rates are always lower on a standard principal and interest loan than for say a Line of credit. The bank wants to ensure the uneducated choose the style of loan that best suits them. While the average home owner will always be offered a 25 to 30 year Principal and Interest loan, and stay in debt for many, many years, a more astute borrower will know that a line of credit, used properly will pay much less interest each month on a higher interest rate.3/ Profit Margins. Banks exist to make a profit for their shareholders, and they do a darn fine job of it! They spend millions of dollars on research, marketing and calculations to ensure they get the highest return on lending money. So you aren’t going to beat the banks on the interest rate game, in fact if you try you are playing into their hands. You need to get smarter and beat the banks another way.This is what the banks DON’T tell you!You can use the banks money for free.This is where smart borrowers can get way ahead of the game.
By getting the right sort of loan, and a credit card that you pay out in full on the due date means magic happens, as long as you set up your accounts correctly.
  1. Bank all of your money, wages into the line of credit.
  2. Use your credit card for all of your general spending.
  3. Minimise cash out.
  4. Track your spending.
Your money will be offsetting interest against your loan, and you are using the banks money for free for up to 55 days before paying out the credit card in full on the due date.The results will be astounding. Loans used this way can mean you could pay your house out 10-15 years early without spending a cent more. The system of fast debt reduction doesn’t come naturally, and you need to get and stay organised. (One of our Think Money coaches will get you sorted in no time.)Now THAT is how you beat the banks and why interest rates just don’t matter!