Keep calm, borrowers are fine

Despite the number of concerning media reports about the increased percentage of household debt, consumers are well-placed to handle future interest rate hikes.

Although there will always be individual circumstances where people unfortunately find themselves in mortgage stress, the majority of borrowers are prepared to handle a modest increase in interest rates.

When lenders assess a client’s ability to repay a loan they use a ‘test’ interest rate that is currently around 7.40% p.a. Lenders also assess Interest Only loans using Principal and Interest repayments. 

This means that most variable rates would have to increase by over 3% before clients could potentially struggle.

It is worth noting that the average monthly variable interest rate over the last 10 years is approximately 6.7% per annum, during which they did read 9.45%. 

The fact does remain that to buy a house in Sydney or other major capital may mean taking on more debt than you may want to. 

If you are interested in seeing how your loan repayments would change with any interest rate changes, I can print off a repayment schedule. Alternatively, if you are able to reply an extra $100 a week or month, this makes even better reading.

Kelvin