In December it was decided that we would continue with a repo rate of 0.75 percent, which is a low level. The reason for the low repo rate is that it wants to achieve its inflation target, which is expected to be low in the coming year. When inflation accelerates again, an increase may occur. At the time of writing (March 14, 2014), the interest rate remains at the same level and it will probably not change for a while.
The Good Finance plans to remain at this level for a while – until early 2015 – but there is never any guarantee of exactly how long they will keep the low level. If it becomes relevant, there may be an earlier increase, depending on how Sweden’s economy looks. You can read a little more about decided here. The next announcement regarding our policy rate will be April 9th.
A low repo rate means that market rates are low
This applies both to interest rates for loans and to savings accounts etc. It is therefore both good and bad at the same time depending on what you want to do.
For those who want to save money, there is not much return when saving in a savings account because the banks have very low savings rates due to the low interest rates. If you want to borrow money you also get a low interest rate, but here it is an advantage instead as it means cheaper loans.
Take advantage of the low interest rates
These are good times for mortgages. When it comes to mortgages, you have the classic choice if you want to tie up your loan or if you want variable interest rates. There will often be recommendations to tie up the mortgage when there are low interest rates because it is likely that there will be higher interest rates in the future.
However, it feels like we are in a very stable financial position right now and the Good Finance seems likely to maintain the low interest rate level of 0.75% all the way to the beginning of 2015. Therefore, it does not feel really worth tying up the loan, as interest rates will still come lie still at a low level.
Now that it is cheap with mortgages, it is a good idea to start saving a buffer for years to come when we get a higher mortgage rate. It is in times like these that it is important to think ahead and spend money on the higher costs that come. This applies mainly if you have a variable interest rate, otherwise it is not the same risk.
Repaying a little extra on your mortgage
If you wish, you can also take advantage of repaying a little extra on your mortgage so that you can reduce it slightly. This is to be seen as an investment because a smaller mortgage loan leads to lower interest costs. Given that you get so little in interest on savings accounts, it is not directly worth having money lying around and then extra payments on the loans can be a good way to spend them. Of course, you can also consider investing in other things like stocks or funds.
It is not only home loans that have benefits right now, but also private loans. If you have been thinking about borrowing money for a renovation or a trip etc then it might be a good place to borrow now. The low interest rates allow you to take out a loan with a nice low interest rate and it is considerably cheaper than it could be. You simply have to take advantage of the benefits that a low repo rate offers.