High rates like the 80's - likelyhood?

Gday everyone,

Just curious what you think the likelyhood is of ever having rates like the 1980's again where it got up to 17% or so. (http://www.loansense.com.au/historical-rates.html)

My thinking is that with the much higher levels of debt these days, the RBA could have a much bigger influence on the general public with much smaller rate increases (i.e. a rate of 8% today may be about the same as 15% in the 80's - just an example).

What are peoples thoughts? Part of the reason I'm thinking about this is because I'm deciding whether fixing all or part of my home loan is a good idea or not. Currently on 5.04% variable, with 3 to 5 year fixed rate loans available around the 7-8% range. Like many have said on here, the best time to fix would have been about 6 months ago - but if there is even the remote possibility rates surging in to the teen's like the 80's - this would still be a good chance to fix.
 
It is always a possibility - albeit probably remote in the short-medium term.

I base my decisions on numbers and a sensitivity analysis - I forecast out 20 years in excel and work out worst/median/best case. Then decide whether I can mitigate or wear the risk!

You can then work out what it would take to make it worth fixing now for 3 years. e.g. How much of an interest rate rise you are actually insuring for by paying more now.

That being said, given the state of the global economy, I'm not very worried.
 
but if there is even the remote possibility rates surging in to the teen's like the 80's - this would still be a good chance to fix.

there is a remote possibility, but your life would be a very dismal existence if you constantly lived in fear of remote possibilities. i couldnt do all the things i normally do every day if i was worried about remote possibilities.

in modern times my deciding rate is 10% - if i can afford variables to hit 10% and still make repayments, then no question stick with variable. if i cant then consider fixed.
 
there is a remote possibility, but your life would be a very dismal existence if you constantly lived in fear of remote possibilities. i couldnt do all the things i normally do every day if i was worried about remote possibilities.

I agree completely, if not I wouldn't have started buying property in the first place - I suppose what I was trying to get at, was the upper limit I should be considering these days in terms of how high interest rates could realistically go in the next 5 years or so. I've been working off something around the 10% mark also. However, it would be interesting to see if anyone has any good arguments as to whether we could ever hit the mid teens in rates ever again, or if they are a thing of the past.
 
Interest rates of 18% would be around tripple what they are now, and there's already some economic stress on some borrowers.

A year ago, when rates were 9%, there were lots of borrowers worried that they wouldn't be able to afford the mortgages. The high interest rates were designed as a cooling effect for a bullish economy.

If rates went to 18% in the short to medium term, the effects would be devistating. Only those persons and businesses with minimal debt would be able to survive. It would ruin the economy.

It could happen in the long term, but the debt levels in Australia would have to change dramtically for the country to be able to afford these types of rates.
 
Interest rates of 18% would be around tripple what they are now, and there's already some economic stress on some borrowers.

A year ago, when rates were 9%, there were lots of borrowers worried that they wouldn't be able to afford the mortgages. The high interest rates were designed as a cooling effect for a bullish economy.

If rates went to 18% in the short to medium term, the effects would be devistating. Only those persons and businesses with minimal debt would be able to survive. It would ruin the economy.

It could happen in the long term, but the debt levels in Australia would have to change dramtically for the country to be able to afford these types of rates.

Phew:eek: that makes me feel better.
 
I have owned IPs and paid interest of 16%.

What you must remember is that, when the rates were so high, so was inflation. Inflation was around 8% or so which accounted for some of the high interest rates.

Watch the inflation rate - once the genie is out of the bottle it is VERY hard to get back in.
Marg
 
Given current levels of consumer debt, 18% would be Game Over so extremely unlikely.

That said, 10% would be as painful now as 18% was then.
 
Inflation?

And how likely is inflation? Looks like deflation is flavour of the month elsewhere but could Australia end up with some major inflation anytime soon?
 
I reckon 9-10-11 is always a possibility but I don't think any Oz Gov will ever allow 17 or 18 again because they know they'll be straight out the door. Keetings still trying to live that down.
 
I reckon 9-10-11 is always a possibility but I don't think any Oz Gov will ever allow 17 or 18 again because they know they'll be straight out the door. Keetings still trying to live that down.

It is not you saying "ALLOW". It is controled by the market. 2 years, I did not believe my mortage rate would hit 10% but it did last year to 10.5%. You never say never. Most of "economists" say there would not be a rise in october but it did --- so how do you take these high educated and paid economists' comments?
 
Let's be honest here, how many would have thought two years ago when interest rates were nudging 10% that they would EVER be down around 5%, let alone so quickly?

Anything is possible....
Marg
 
HI, I did think interest rates would drop rather quickly, not because I'm clever but because I went through the same thing in 2000/2001

After I took out 4 loans, interest went up to 8.5% in under a year [up 2.5%] then when the twin towers got hit, they went down to 5.35% and stayed like that for more than a year!!

It's now been 10 months since the 5.09% [now +0.25]

Please God, let the rates remain under 6 for another year!!

Y
 
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