Don’t Fear Rising Interest Rates: Your Guide to Thriving in Real Estate Investments!

In the face of a persistent and challenging inflationary environment, numerous countries, including Thailand, are resorting to raising interest rates as a measure to combat soaring inflation. This surge in interest rates has naturally sparked concerns among prospective real estate investors, as it translates to higher interest costs on home loans. In this blog post, PropertyScout will take an in-depth look at the phenomenon of "rising interest rates," its underlying causes, and provide crucial insights for individuals considering real estate investments amidst this period of increasing interest rates.

What is Interest Rate?

To comprehend 'rising interest rates,' it's essential to grasp that they pertain to the policy interest rate, a vital tool wielded by each nation's central bank for monetary policy. It can be adjusted to boost the economy and investments through rate cuts or curb inflation by raising rates. The central bank utilizes this mechanism to guide economic growth and domestic inflation effectively. Typically, financial institutions' rates are influenced by the policy interest rate.

Causes of Rising Interest Rates

Amidst a severe inflation crisis, central banks worldwide are responding by gradually raising interest rates, resulting in a period of rising rates. The implications of this escalation for the overall economy are significant. Let's now delve into its impact.

When Central Banks Raise Interest Rates, What Are the Economic Impacts?

• Strengthening Baht Value

If interest rates in Thailand are higher than those in foreign countries, foreign capital may flow in for investment or profit-taking in the Thai baht. This is due to the higher returns compared to foreign currencies, leading to a stronger baht value. However, a stronger baht may impact export-oriented businesses, as their revenues could be affected by reduced exchange rates after calculations.

• Cautionary spending by Citizens to avoid debt

As interest rates rise, people become more cautious in their spending, reducing discretionary expenses, and being mindful of excessive debt. With higher financial costs, individuals refrain from accumulating debt as before, which can slow down economic growth and contribute to inflation.

• Delayed Investment

Rising interest rates diminish the appeal of investments, leading people to prefer depositing more money in banks due to higher returns on deposits. This reduced motivation to invest in risky assets is because the returns may not differ significantly from bank deposits. Businesses face higher financial costs from increased interest rates, potentially leading some companies to delay expanding their operations or exercise more caution in investments.

Investing in Real Estate amidst a Rising Interest Rate

As interest rates rise by 1%, borrowers' burden increases by 7%. In this scenario of escalating interest rates, individuals looking to secure a home loan should adequately prepare to minimize the impact of higher interest costs as much as possible.

• Planning to Increase Income and Reduce Expenses to Accelerate Mortgage Debt Repayment and Save on Interest

Amidst rising interest rates, homebuyers can optimize their free time by exploring extra income opportunities and reducing unnecessary expenses. This strategy enables them to boost monthly savings, which can then be channeled towards accelerating mortgage debt repayment, leading to quicker debt relief and lower interest costs.

• Maximize Your Down Payment Savings

When applying for a home loan, a larger down payment results in a reduced loan amount. Consequently, this leads to lighter monthly installments and lower interest costs.

• Compare Loans Wisely: Strive for Low-Interest Rates

Before finalizing a home loan, it's crucial to compare interest rates. This enables borrowers to accurately calculate their repayment obligations. Opting for lower interest rates means a larger portion of each installment goes towards reducing the principal amount, making it a favorable choice, especially during times of rising interest rates for homebuyers.

Choose Fixed-Rate Mortgage Option

Some banks initially offer home loans with low-interest rates, often as fixed-rate mortgages, to attract customers. Later, they may switch to higher floating interest rates, lasting until the end of the loan term. Amid rising interest rates for homebuyers, opting for a fixed-rate mortgage in the beginning helps manage interest expenses over time. As the loan nears the floating interest rate period, interest rates may begin to decline again.

When approaching the floating interest rate period, borrowers can negotiate interest rate reductions or explore refinancing options with their current bank or another institution offering lower rates. However, before refinancing, it's crucial to consider hidden costs like prepayment fees, property valuation fees, and mortgage registration fees to ensure it is a financially sensible choice.

MRTA Insurance

When seeking a home loan, getting Mortgage Redemption Term Assurance (MRTA), a life insurance policy that covers the loan, may lead to a slight reduction in interest rates from banks. Usually, the discount falls between 0.25% to 0.50%. Nonetheless, it is crucial to thoroughly review the terms and conditions to assess if it is a beneficial choice.

Closing Comments

In light of the rising interest rates and their impacts, it is clear that investors must review and adapt their goals and investment strategies to the current situation. Adjusting to the prevailing conditions is essential for achieving successful outcomes. Seeking expert advice and consultation for real estate investment planning, such as from PropertyScout, can be highly advantageous.

Homebuyers, despite challenges from increasing interest rates, can mitigate the burden of mortgage interest through effective planning and preparation. With careful consideration, they can navigate the era of rising interest rates without major financial impacts.

Looking to invest in real estate but you're not quite sure? Get in touch with us at PropertyScout today for tips and tricks to make your real estate investment an epic reality!