Today we are going to do a basic and quick review to demonstrate the impact of interest rate movements to an investor's bottom line.
So far this year (2025), we have had a 3 interest rate cuts of 0.25 basis points each. This equates to 0.75% in total in terms of interest rates impact.
Lets suppose Johnny Henchman of Sydney owns 5 IPs, with loan outstanding on each of these on average of $500k each, meaning his total debt currently is $2.5 million.
Prior to the 3 rate cuts, lets assume he was paying 6.9% interest across all of his loans, on an Interest-Only basis.
This means he was paying a total of $172,500 annually to the bank in interest repayments (0.069 * 2,500,000), which equates to interest repayments of $14,375 per month.
With the interest rate cuts, with banks passing on the same 0.75% reduction, this means Johnny's new interest rate will be 6.15%. This means his total repayments would be $153,750 annually (0.0615 * 2,500,000), which equals $12,812.50 in monthly repayments.
As you can see above, the rates cutes in 2025 to date means Johnny is now saving $1,562.50 in monthly costs - showing the critical impact that interest rates have on an investor's overall borrowing capacity and financial health.
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