Personally, I’m about as close to the classical model of “homo-economicus” – economist’s model of the perfectly rational human being who meticulously weighs the costs and benefits of each decision – as they come. I track – to the cent – all my income and expenditures each month and calculate my resulting budget surplus.
Borrowers who ‘fudged’ their declared expenses when applying for loans – will soon be feeling the pinch. The size of my budget surplus last month? $843. That is, without changes to my spending patterns, I’ll be in the red soon. Many others – particularly borrowers who ‘fudged’ their declared expenses when applying for loans – will soon be feeling the pinch.Aussie borrowers who shackle themselves to large mortgages also submit themselves – often unwittingly – to becoming part of the central bank’s “transmission mechanism of monetary policy”.Changes in interest rates work in several ways to cool the economy, including through their impact on asset prices and the currency.
For variable borrowers, rate rises are already packing a punch. But for many, the pain is being delayed and today’s rapid rate rises risk landing like a king hit to their budgets in years to come.