 Managing mortgage repayments
The Reserve Bank of Australia has expressed concern that many Australians are taking on too much debt. Tempted by historically low interest rates, many are borrowing more and more for their mortgage.
RBA governor Glenn Stevens is worried about the effects when interest rates and inflationary pressure rise.
The governor's comments come as recent reports show that while weekly home loan repayments have fallen from $2,056 last year to just $1,831 in February, the average loan size for first home owners has increased by $52,000 in the last two years.
"At 3%, the overnight rate is at the lowest level since the early 1960s," Stevens said. "The debt servicing costs of households have fallen faster and further than in previous cyclical episodes and some scope remains to ease monetary policy further."
Mr Stevens said the RBA will take into account new levels of debt accumulated by Australian's when deciding future interest rates. He expressed concerns that low interest rates could be tempting many borrowers in to larger amounts of debt, which can only be managed with rates are low. So the worry is what happens when rates eventually rise.
However, Mortgage Choice senior corporate affairs manager Kristy Shephard counterbalances the argument by pointing out that lenders are shielding themselves against possible mortgage delinquencies by tightening their lending criteria and placing stricter credit checks on all home loan applicants.
Ms Shepherd also said that the current low interest rates are encouraging a lot of people into the market, however, they certainly recommend applicants create a [financial] buffer for the future.
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