Like many things in life, risks & opportunities present
themselves by actions or inactions. How we respond to these challenges
determines much of our personal temperament over an extended period. We now
need to adjust our lifestyles back to a realistic level of 20 years ago before
the big debt and equity bull market started.
For those of us with mortgages, the constant talk in the
press concerning whether the Reserve Bank of Australia [RBA] will or won’t
adjust the cash rate dominates our “front of mind” thought processes. When the
inevitable decision is made by our current lender to pass all or some of the
RBA cash rate adjustment on, we then become further agitated by press coverage
demanding what the banks should pass on.
Passionate headlines, conspiring commentary, and rehashing statistics
of what the CEO gets paid are regurgitated to remonstrate those who take these
The economic reality is the world, and more specifically
Australia, needs strong & well capitalised banks. Some finer points for
closer consideration are;
What many are unaware of is in countries like
the US & UK, banks aren’t lending unless you have a 40% deposit, sometimes
more. In Australia we can still borrow up to 95% and many still do.
Our property prices have remained relatively
stable [less than 10% discounts off the peaks of 2006 & 2007].
We still have competition between banks even
though the competition has reduced in numbers.
Our government hasn’t had to nationalise any
banks to protect deposits and to stop a run on these banks.
For most of us who want a job, we can get one. Our
unemployment rate is rising but the UK & US have unemployment rates exceed 9
Yes, we all want to pay as little as possible on our
mortgages but we also need to understand that interest rates, like property
& the stock markets go through cycles, both up down. Short term adjustments
are appreciated but can’t be relied upon for long term life style sustainability.
As referred to above the, opportunity to reduce your
mortgage amount quickly in a falling interest rate environment should be
accepted if your cash flow is strong enough to maintain existing repayments
& conversely when rates rise, as they will, we need to accept the risk that
if we don’t change our repayment patterns we eventually get further behind.