Can you service your existing debts if rates rise to 10% or 18%

Yes I remember having our first home then, and our first baby! One thing you also have to remember though is that rates didn't go from 5% to 18% our loan when we first took it out was at 14% so it was an increase of 4%.
Our property value doubled in that time so we did have equity but I was off work with our baby and we often only had $20 for food. My parents paid our rates that year and hubby's family would drop boxes of veges off to help us out. We also ate at their place every weekend.
It was horrible! But we managed to keep our home. 1 neighbour gave up and went home to England, another couple in our street ended up divorced from the stress.
If it went to 18% now, I would be stuffed but I couldn't see it happening so quickly that we couldn't do a strategic sell off first.
 
Anything above 8% would start pushing it for me unless there was an increase in rent.
If it was only for two years or less, then I could easily ride it out at 10%.
 
the biggest pain of the whole 18% days of the early 80's was the rapid rise.

We bought our first home with 3yo fixed rate of 12.5% at the end of the 3 yo we came out at 18%:eek: Our house did double in 18 months and then doubled again in the next 2 years, after being pretty stagnant for the first 3 years. but equity doesn't feed you, and it meant the rates rose at the same time.

Same as Joan, I was at home with 2 babies ( to family benefit A/B $$ ) like they get now. It was VERY VERY tight for a while.

Regardless of the current interest rate, I always do my "back of envelope calculations" on 10% just to be sure. Never want to be in that situation again.
 
It will be long time to before it comes. All but one of my properties are positive cashflow now. So if the rate rise comes gradually, I should be able to to increase rent to keep up with it.

Trust me. We won't have RBA rates going up to 5% in the next 10 years.

They will only raise rates if we have a whopping economic growth and huge inflation.

No one in their right mind would expect these conditions to happen in the next decade.

In fact the risk is for it to fall further and remain low for longer.

At current High levels of debt, you only require a small rise in rates in order to control inflation.
 
I guess the answer is yes. But at 18% it'd be a tough slug - at 10% pretty comfortable. But you know, if rates rise to even 10%, there is some serious shift in the economic circumstances in this country. And you'd just have to adapt accordingly.
 
Anything above 8% would start pushing it for me unless there was an increase in rent.
If it was only for two years or less, then I could easily ride it out at 10%.

Read back in this site several years ago when the rates were going that way 8%,when I started the rates were 18%,very hard to get money and only through Banks,and if the bank manager did not like you ,they would just say come back in six months,plus unlike the "ASX" where you can be wiped out in a matter of weeks,the property cycle take a full 18 months turnaround,once the rates climb again,as they will..
 
Just a general discussion here.... Are there any old esteemed members of this forum who had debts in the late 80's / early 90's when rates were 18%. I was a youngster then but remember my parents having their business loan, home loan and overdrafts on the clinics. They had to pay the private school fees etc. They survived the high rates thanks to the profitable business.

If in the next 5 to 10 yrs rates increased to 10% or god forbid 18%.... could you service your debts? (Anz 10 yr fixed rate is around 7.69%).

Obviously a lot of investors would be bailing out and we would see a significant correction in property prices.

A lot of investors will say 'it will never happen'. Anyone who has studied Economic theory in detail could disagree.

Would you sink or swim if the rates rise above 10%
If things stayed the same in the business...probably no.

If and when rates start to go back up, I'll be locking in 3 of the loans, plus; we are currently smashing existing debt wherever poss to create more LVR, DSR, equity, etc.

But, we have an IP and our PPoR which we can sell off, which would be enough to stay afloat, clear all debts and keep the business.
 
the biggest pain of the whole 18% days of the early 80's was the rapid rise.

We bought our first home with 3yo fixed rate of 12.5% at the end of the 3 yo we came out at 18%:eek: Our house did double in 18 months and then doubled again in the next 2 years, after being pretty stagnant for the first 3 years. but equity doesn't feed you, and it meant the rates rose at the same time.

Same as Joan, I was at home with 2 babies ( to family benefit A/B $$ ) like they get now. It was VERY VERY tight for a while.

Regardless of the current interest rate, I always do my "back of envelope calculations" on 10% just to be sure. Never want to be in that situation again.

so your saying that a $500K house today after 3.5 years would be worth $2,000,000, you just had to ride out some short term pain.... where do I sign up?
 
Can someone please remind me why rates were very high in the past?

And can someone please tell me if the same economic conditions will make a repeat appearance?
 
Trust me. We won't have RBA rates going up to 5% in the next 10 years.

They will only raise rates if we have a whopping economic growth and huge inflation.

No one in their right mind would expect these conditions to happen in the next decade.

In fact the risk is for it to fall further and remain low for longer.

At current High levels of debt, you only require a small rise in rates in order to control inflation.

I like this comment ''Trust me. We won't have RBA rates going up to 5% in the next 10 years''

Anything can happen in global economies. Only last year American was on the brink of defaulting on their budget and many economists suggested hikes in world interest rates. We are a small economy affected by global changes...
 
Can someone please remind me why rates were very high in the past?

And can someone please tell me if the same economic conditions will make a repeat appearance?

Rampant inflation partially caused by skyrocketing oil prices and before cheap chinese labour produced everything we buy
 
Trust me. We won't have RBA rates going up to 5% in the next 10 years.

They will only raise rates if we have a whopping economic growth and huge inflation.

No one in their right mind would expect these conditions to happen in the next decade.

In fact the risk is for it to fall further and remain low for longer.

At current High levels of debt, you only require a small rise in rates in order to control inflation.

Big call, 10 years is a long time, I wouldn't be so sure
 
Trust me. We won't have RBA rates going up to 5% in the next 10 years.

They will only raise rates if we have a whopping economic growth and huge inflation.

No one in their right mind would expect these conditions to happen in the next decade.

In fact the risk is for it to fall further and remain low for longer.

At current High levels of debt, you only require a small rise in rates in order to control inflation.

I would not be banking on the rates stay below 5% for ten years as a attractive investment strategy,what's happens if the rates are above 5% within 18 months that's more predictable then they way individuals spend their money..

http://www.abc.net.au/news/2015-05-...g-boosted-by-chinese/6487486?section=business

http://www.vale.com/australia/EN/business/mining/iron-ore-pellets/Pages/default.aspx
 
10 years is a huge time frame to trust a stranger on a chat room on such a major call

Of course you think in the next 10 years we will have budget surpluses and another major mining boom. :rolleyes:

There's only one reason rates go up: Inflation. Nowhere is this seen ... We are overproducing commodities and goods, and once the Feds and ECB unwind the QE in next 10 years, we all know where inflation is going.

Apparently people with Old Mentality who look at the Old Past don't understand New World economics.
 
Of course you think in the next 10 years we will have budget surpluses and another major mining boom. :rolleyes:

There's only one reason rates go up: Inflation. Nowhere is this seen ... We are overproducing commodities and goods, and once the Feds and ECB unwind the QE in next 10 years, we all know where inflation is going.

Apparently people with Old Mentality who look at the Old Past don't understand New World economics.

new world economics... the dream. Just need some accurate forecasts for the oil price in 10 years time and any set of lotto numbers and we can all retire
 
Top