There are (mostly) benefits to being married to a psychologist – besides for (sometimes uncalled for) free advice, it provides me with a greater understanding of human behaviour.
When the cash rate was plummeting towards its current lowest levels ever recorded, we sang from every rooftop about the opportunity that existed for borrowers to manage their debt and grow their wealth – whilst rates were so low.
Yes, they were extreme conditions, being locked up for months on end. This justifiably caused many to splurge to help with the some of the blues that ensued.
It’s important to note that rates were cut that low to deal with an extreme global economic impact. However as a result, the construction sector, car dealerships and many other retailers were having record months during this period.
Many, but unfortunately not all, also ploughed a lot more into their mortgages. We have to be philosophical that had it not been for the pandemic, rates would have been a lot higher, so the increases to come need to be viewed as swings and roundabouts (to a degree).
We are now in a position where the RBA has begun their sharp u-turn of the cash rate to redirect the effects of all this extremely cheap money.
There are many clients who took advantage of the extremely low fixed offered rates over the past 2 years.
Where fixed, it is still worth considering making additional repayments on your (non deductible) debt (where allowed – or into your variable loan splits), as if your rates had increased too.
Those who are on variable only rates, take the additional step of repaying an extra 0.25% to whatever increases arrive in the coming months, as these increases are very likely to continue until inflation is under control.
There is the normal fear mongering in the media as to how high rates may get. What we do know is that these emergency levels created another emergency in stoking global and local inflation. They served a purpose, but now need to get back to healthier levels. And we accordingly need to adjust our lifestyles and spending habits on the basis that our debt costs will be increasing.
Hopefully cool minds prevail and these increases are passed on in an orderly fashion.
Whichever way they are delivered, what is in our control is how we continue to manage our cashflow to ensure it benefits us and not the lenders.