3 simple reasons why interest rates don’t matter.
Interest rates don’t matter. Of course, 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, they are an uncontrollable and therefore I don’t stress about them at all.
They are what they are… however here are a few thoughts of antics that the banks get up to that you may not have considered.
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 often have one off loan set up fees which balance out the lower interest rate anyway.
For example saving 0.3% on a $350k loan amounts to $1050 over the year. Sounds great until they combine that saving with an application fee of $600 and a couple of other sneaky fees right at the beginning which makes it work out just the same for the bank and you in the end. Or perhaps even worse if they combine it with an annual fee of say $395 for the ‘Special’ product.
2/ Interest rates change.
Another factor to consider is you may start on a lower interest rate, but interest rates change. In fact, this is one of the major tricks the banks get up to when they offer a low interest rate. Ever notice your bank sometimes doesn’t pass on the full interest rate drop when the RBA declares one? Or that sometimes the interest rate goes up even when the RBA stays level? This is how the banks bring your special rate back to normal.
3/ Profit Margins.
The banks sole purpose is to make profit for their shareholders and they do a darn fine job of it! They spend millions of dollars on their research, marketing and calculations to ensure they get the most money back from 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 at their own game.
Just like in sport – to reach your true potential, and to achieve massive goals you usually can’t do it by yourself – you need a coach! With the right tools, and a coach to teach you how to do it – you can get off that mouse wheel of debt much faster.
Now THAT is how you beat the banks and why interest rates just don’t matter!