Quote:
Originally Posted by Aliantha
Then all of a sudden, someone realized that inflation was getting out of control (this was about 3 yrs ago), so the reserve bank started putting up interest rates. They went up really only about 4% in the end over that period...maybe 5%, but it took the average mortgage rate up to nearly 9%. ... This of course put a huge amount of financial pressure on mortgagees who had in many cases taken out 100% loans in the last few years.
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Increased central bank interest rates should have no affect on a mortgage even if the mortgage is 100%. However, with bean counter mentality, something new was created - rate adjustable mortgages. Nobody with basic financial knowledge would take out an ARM.
For your reasoning to be valid, ARMs must have been widespread in Australia. Otherwise higher central bank interest rates would have left mortgage payments low. One reason to own a house: inflation and the necessary higher central bank interest rates make life easier for the holder of a fixed mortgage. His mortgage payments remain unchanged and the house value increases. Just another reason why no informed home owner should even take out an ARM.