Tuesday, November 02, 2010

Increasing Interest Rates

I'm no financial wizard, but the following observations seem blatantly obvious to me.

1) The RBA has just raised official interest rates again

2) Despite the rise, current interest rates are not particularly high

3) While lower interest rates are always helpful to those in the early stages of a mortgage, they are not particularly helpful to those who are trying to save the deposit for their first home, neither are they helpful to those relying on interest from their savings as a supplement to pensions or other low incomes.

4) Lower interest rates do not make home ownership more accessible. They merely help push up the price of properties as they give an illusion of temporary affordability. For some reason a booming property market is seen as a good thing, maybe because the financial wizards who report and comment on these things gain financial benefit from increasing property prices - too bad for those who are merely looking for a roof over their head.

5) Mortgages obtained when interest rates are low are dangerous. Financial difficulties are guaranteed when interest rates inevitably rise.

6) Current struggles with mortgage payments are NOT caused by the interest rate. They are caused by the higher amounts that have been borrowed, made accessible by the lower interest rates.

7) Abnormally low interest rates help to get people into more debt than they can hope to handle.

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