Why I’m Pissed About All The Interest Rate Rises

When rates went so low, blind Freddy knew rates under 2% were going to result in a hard rebound upward.   

They (the RBA/government/covid conspirers) had a long time to work out alternatives to the big interest rate increases we’re experiencing now.   

Some would say it’s part of their grand plan, but I just think these tools look only as far as they can kick each other (that is, to the next election).  Long term problems aren’t really something they care too much about.  

Whilst I think the rootcause of the current problem many are facing is not the rate increases, but the overzealous rate decreases and other stimulus we all benefited from, there are surely other levers they can pull to guide us back to what really is just a more normal interest rate level than what we’ve had the past few years. 

Here’s the best alternative to interest rate rises I’ve heard: 

How about this? 

The government should consider increasing the super guarantee.  Where instead of excessive interest rate rises, you pay extra (temporary) compulsory super contributions for a little while, and your employer contributes some extra percentage points too. 

Building your wealth and NOT the banks?  

Now there’s an idea… 

Here’s why I think this is good and might help avoid people losing their homes or being forced to downsize:  

  • It hits everyone with a job, not just people with variable home loans – so you could spread the financial burden to the entire workforce more evenly – rather than only hitting those with variable loans 
  • You keep the money in your super for retirement instead of extra interest lost forever 
  • You build your wealth, NOT the banks’ profits 
  • Importantly, if you are in financial hardship and at risk of losing your home – your super fund might release some money. Therefore some of the increased payments could be diverted back to your home loan if you’re in financial difficulty (rather than being lost in interest expense). 
  • There’s a lot of people on fixed rates unaffected by the interest rate increases (personally, I still have another 3.5yrs on my fixed rate), so these rate rises are not hurting everyone equally.
When inflation is the RBA’s primary concern, surely smart advisers could help ensure this method has a similar overall effect on the economy, by taking an equivalent amount of cash out of households and business’s cash flow?  
Reasons against: 
  • I don’t know… tell me in the comments 🙂  
  • Your bank share dividends get smaller? 
  • Your employer is dodgy and won’t pay your super anyway?? 
Let me know what you think in the comments. 

In closing, the economists out there will no doubt dispute this method, I’m not saying zero interest rate rises but surely something like this could have a part to play? 

Rates should not have went so low, it was clear at the time that it was bad policy.  Working in an industry that benefited, I was still not in support of the low rates – but of course we are more than happy to take them at the time and lower our repayments. 

They overcooked the rate cuts and now they’re increasing rates harder to compensate – despite many homeowners and investors with fixed rate loans for a year or two longer.   

So those with variable loans get hit harder to attain the impact on inflation that they’re looking for.  

But what happens when some many come off a fixed rate at the next 12 months? 

* Thanks to my mate Aidan J for this idea and introducing this topic of conversation.  Add comments to our facebook if you have a topic of your own you want to discuss or hear more about. 

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Articles and other things I thought you’d like because you’re interested in some things sometimes… 

What will happen with interest rates over the next few years? 

This is a question I’m asked almost every day.   

The one common denominator with the interest rate forecasts of every single economist who’s profession seems only to predict this one thing – they all seem to get it wrong 100% of the time, when looking forward more than a few months.  You’ve only got to scan back in time 3-6 months, and they’ve all changed their opinions for what the back half of 2023 or 2024 will look like. 

A useful method for predicting what might happen to interest rates in the next few years is to take a look at what the fixed rates are right now.  At the moment, we have 2yr fixed rates higher than 3yr fixed rates.  That means the market is pricing in lower rates on average over the next 3yrs when compared to the next 2yr period. 

Here’s my gut feeling… 

Probably that means more rate rises in the near term, but maybe they pull back a little bit later in the year or early next year. So that the 3-year average rate becomes cheaper than the 2-year average rate. 

This method is not foolproof, but this is what billions of dollars are predicting so to me it seems a logical estimation. 

But >>> whilst the overall cost of the loan is an important factor, you should always take your personal circumstances into account when deciding if you should fix and how long you should fix for. 

Some simple examples of personal life milestones you should consider when considering a fixed rate: 

  • Income or expenses expected to change in the future?  Some examples:
    • Dropping to one household income (due to baby or some other reason) 
    • Income increasing in XX years (maybe all the kids will be at school so you can go back to work full time), maybe a fixed term matching this lifestyle change builds in extra security to your situation) 
  • Kids finished private school in XX years, expenses considerably dropping but tight until then. Could be a good reason to fix for that timeframe 

Former RBA Governor’s interest rate and mortgage cliff warnings.

For those interested in interest rates, last week shared this conversation with Ian MacFarlane. I’m sharing again in case you missed it.

Cashback for refinancing is disappearing  

Only ANZ from the big 4 banks is yet to announce an end to cashback for refinancing, although we are expecting them to come to the big-bank profit party sometime soon.  You might only have a month or two to get a $3-4000 cashback for refinancing.  But likely a few banks will linger longer than that.

Important economic announcements this week 

  • RBA Increased rates by 0.25%
  • Building approvals down -8.1% this month
  • Private housing approvals down -3.8% this month

Opinion: This continuing decline in building approvals, increasing interest rates and low rental vacancies may be bad news for renters.  When interest rates steady again, property investors will start to claw back some of their rate rises through higher rentals.


Quote worth thinking deeply about… 

“Wealth consists not in having great possessions, but in having few wants.”

Why I think this quote is important: 

If you read my article about why I hated myself you might recall stoicism being mentioned.  Stoic philosophy has enhanced my life in a way that I find it hard to put to words.   

Stoicism can be useful in every part of life – and the stoics talk about a lot is desire, by reducing your desires you can get everything you want.  

Simply put, if you want less things, you will spend less money on things you don’t really need.  

Less alcohol or fancy restaurants.  Fewer new clothes, or excessive holidays.  

Perhaps you’ll find joy in simpler things.  And perhaps you’ll have more money left in your bank account each week – to save, invest, or whatever.

This is what happened to me… and here’s my favourite book on the topic.  The Daily Stoic book.  So much helpful advice.

Thank you for reading

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