Peter is a property investor/property manager who has a large number of rental properties and chose to have all his loans on a variable interest rate. He did this as he wanted to be able to reduce debt when it suited him and also to repay loans if he sold a property. He felt that a variable or floating rate gave him the most flexibility and suited his needs. He was correct; however there were a couple of mistakes that Peter was making.

  1. There was no need to have his total amount of borrowing on variable, so we left an amount that he was likely to pay off in the next year or so on floating and fixed the rest. This limited his exposure to the amount that could go up if rates increased and also reduced his interest costs as the fixed rates were less than he was paying on floating.
  2. Peter’s bank was charging him the full carded or retail variable rate. We were able to approach the bank and negotiated a 50% discount which made a significant difference to his payments.

Between the reduced floating rate and the amount that we fixed on lower rates, Peter saved over $28,000 of interest costs in the first year alone. He will continue to save each year for the next few years as we obtained for him fixed rates for up to 4 years, some of which were around the 5% mark.

Case study 1

Colin in Wellington had several rental properties and when we met him he had nearly $3m of borrowing with the ANZ. He was making principle and interest payments and was very happy with his portfolio and his overall position. However when we started to review Colin’s situation, it appeared that he was neglecting to do any other than urgent repairs and maintenance to his properties.

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