Getting settled

Each week during the spring property season, Money's team of experts will come up with strategies for getting the best result before and after the hammer falls.

Make most of rates

Interest rates will only stay this low for a limited time, so make hay while the sun shines.

But how best to take advantage of these record low rates? On the one hand, it's the perfect financial climate in which to knuckle down and pay off the mortgage, but, on the other hand, it could be the golden opportunity to buy an investment property. Whatever path you take, the good news is that there's still time to make the most of the low rates.

Thanks to a surge in house prices and consumer confidence, the big banks are confident that Australians will enjoy another year of below-average interest rates.

Westpac economists forecast rate cuts in February and March next year and the National Australia Bank predicts the next rate reduction will be in February, while the ANZ tips there won't be another rate rise until 2015.

These favourable conditions were enough for Brisbane property investor Kirstyn Marriott to rein in her portfolio so she could focus on debt reduction. Marriott and her husband bought 11 properties around Australia between 2007 and 2010 after being introduced to buyers' advisory group Property Club.

But 18 months ago, the low rates became too good to resist and the Marriotts decided there was no better time to increase their loan repayments.

"With all the interest rate changes, we thought we'd pay down our debt, so we sold five of our 11 properties," she says.

"We needed to re-evaluate and be on safer grounds, so we got rid of the properties that were costing us the most to hold."

Capitalising on low interest rates has reduced Marriott's debt exposure and allowed them to continue to reap the returns from their remaining six investment properties.

Cutting the debt

For those interested in bulking up their property portfolio, Marriott recommends cutting personal and mortgage debt first.

"My advice would be to pour as much into your debt as possible," she says.

Since November 2011, the Reserve Bank of Australia has pared back the cash rate eight times, with the latest reduction in August this year. The average standard variable mortgage rate is now 5.95 per cent - the lowest since 1970, according to the RBA.

Data collected by rate-comparison website RateCity shows borrowers have taken full advantage of low rates and are now 20 months ahead on their home loan repayments.

RateCity chief executive Alex Parsons said based on a $300,000 home loan, it represented a buffer of $35,740.

"Everyone should make sure they're on a low rate and, if they are, they shouldn't be tempted to make minimum repayments," he says.

"For those borrowers with high LVRs or who are paying the bare minimum, now is the time to be making headway on your loan while rates are at historic lows. Prepare now for higher rates, which will come. It's not a matter of if, but when."

Historically low interest rates, combined with high rental yields and moderate housing affordability, have created the perfect situation for many investors.

Mortgage Gallery principal director Rob Whyte says fixed rates have become a popular option for those with an eye on the property market. "Fixed rates take the uncertainty out of cashflow and there's no need to worry about potential rate rises," he says.

With the average three-year fixed rate at 5.10 per cent, the popularity of fixed rates has increased.

But with speculation of a property price bubble mounting, all four big banks raised their fixed loan rates last month. No matter how attractive, fixed rates don't guarantee low debt exposure. Whyte urges caution, particularly for multiple property owners.