Are your stress levels going up with interest rates?

Don Clark says:

02:41pm | 02/02/10

Stressed? I’m not stressed. I kept my payments up while headline rates fell. Didn’t you?

The Reserve bank has decided not to raise the cash rate again just yet.

Stevens:
“With the risk of serious economic contraction in Australia having passed, the Board had moved at recent meetings to lessen the degree of monetary stimulus that was put in place when the outlook appeared to be much weaker.  Lenders have generally raised rates a little more than the cash rate over recent months and most loan rates have risen by close to a percentage point.  Since information about the early impact of those changes is still limited, the Board judged it appropriate to hold a steady setting of monetary policy for the time being.

Interest rates to most borrowers nonetheless remain lower than average.  If economic conditions evolve broadly as expected, the Board considers it likely that monetary policy will, over time, need to be adjusted further in order to ensure that inflation remains consistent with the target over the medium term.”
More: http://www.rba.gov.au/media-releases/2010/mr-10-02.html

stealthpooch says:

02:54pm | 02/02/10

I get stressed when my mortgage goes up, and it’s not because I can’t afford to pay the mortgage (I allowed for double figure rates when I bought my first house last year), it’s just that I know that I’ll have less money for other things.

I think that most of the stress, however, comes from all the media articles that are telling people like me - first home buyers - that I *should* be stressed, that interest rates are going up, that I’m in over my head, I’m greedy, I’ll lose my job, my credit cards will be maxed out, that I’ll lose my house… argh! No matter what I budgeted for, I’ll still be subject to fear-inspiring media beat-ups, and THAT’s what makes me quiver…

Nick says:

03:10pm | 02/02/10

Stealthpooch; Agree wholly with your synopsis. I’m in the same position, was paying out a great deal before rates were dropped right down, but I just left my payments at that high water mark, thus getting well ahead. Now as rates go back up, I’m paying less and less off the mortgage and more in interest, it isn’t stress so much as annoyance. I’m not naive and realise that the good times had to come to an end at some point.

However I see its in the countries best interest for me to pay my loan (and anyone else’s) out as quickly as possible, thus enabling me to inject more disposable income into the economy.  Its a pretty simple statement, I’m aware and sure many rebukes will follow!

AdamC says:

04:04pm | 02/02/10

As a recent first home buyer, I cannot stress enough the importance of considering repayments across the cycle, not just having a small buffer when rates are historically low.

I don’t think anyone teaches people about these sorts of common-sense money matters, though. Just like many people foolishly fixed their rate at the top of the cycle, many have borrowed too much in the past year at the bottom of the cycle. If people were better educated about personal finances, they would not do such silly things!

Andrew K says:

04:05pm | 02/02/10

I don’t think it is the avergage mortgage holder that the media is waxing lyrical about. As always it is the relatively rare but ever-existant ‘hard-luck’ story. Look there will invariably be those that bought in the last 6 months, in an interest rate nirvana, and somehow got a $600,000 mortgage on a $70K household income. Of course these people will become stressed and, ultimately, burned. These are the minority though. I have my own stresses, of my own doing and mainly of being advised to follow the traditional property ownership path of ‘working your way up’. So now I have a small medium-density property that I want to upgrade to a family home. I am prevented from doing this by transaction fees in the order of $50K (NSW). That really is money down the drain. I would have been better off getting the better property first up - using more of the available stamp duty concession (now forgone) and the $50K worth of 2nd stamp duty, legal fees, agent fees etc as more of a deposit on the bigger place. Some people consider this and do go the other way, then for whatever reason get into trouble. There may not be a golden panacea to getting your dream (or adequate) property. It is swings and roundabouts. At least the interest rate on my resultant small mortgage is not an issue though - like many others it just means that less of the extra I pay goes towards the balance, and more of it goes towards interest. Weekly budget bottom line unaffected unless I want to maintain the extra paid off the principle.

Most people who have had a mortgage longer than a year, or who actually took notice of the term ‘emergency’ rates clearly bandied about in the last 6 months would have no difficulty with what is in essence a return to more normal rates.  Other than the recent overcommitteds, there will be those genuine cases that Paul mentions. But unfortunately those cases will exist no matter what the interest rate environment is.

Pete says:

04:11pm | 02/02/10

If you were foolish enough to gear yourself to the eyeballs at 4% you really have no-one to blame but yourself. Oh yeah, and maybe just maybe your bank for letting you have all that money in the first place. They, too, knew rates would go up again… greed catches up with us all eventually. It’s just a matter of when.

p.s. Nice to see Ms Kelly from Banana Bank just splashed out 9 million on a new place. At least she should be right with her staff discount. No mortgage stress for her ...

Super D says:

04:38pm | 02/02/10

The fact that interest rates have not been raised is a very bad sign.  It means interest rates need to stay low because the economy is very fragile.  Perhaps we are about to have a second dip.  That would certainly make for interesting politics.  Fancy having negative growth figures announced mid campaign, imagine if you’d already sqandered the surplus and the cupboard was bare.  I wouldn’t want to be seeking re-election under those circumstances….

jed says:

10:31pm | 02/02/10

it’s amazing how the real estate spivs have been out lauding their insane price rises over the past year, then as it gets closer to the RBA decision they suddenly shift and start releasing new figures about cooling demand, price declines and housing stress. they’ve got a statistic for every occasion.

no doubt they’ll be back to spruiking tomorrow.