Let's say you have a $1m home loan and $15k of credit card debt:
- Person USA - The home loan is fixed, and rates increase by 5%.
- Person AUD - Rates increase by 5%.
Person USA
- Increased borrowing cost for their $1m home loan = $0 (as it's a fixed rate)
- Increased borrowing cost for their $15k of credit card debt = $750
- Total impact +$750/year
Person AUD
- Increased borrowing cost for their $1m home loan = $50,000
- Increased borrowing cost for their $15k of credit card debt = $750
- Total impact +$50,750/year.
Despite increasing rates by less, the impact is 67x more.
Moral of the story is, you can't directly compare interest rate increases in a fixed rate world to that of a floating rate world which is there the RBA lives.
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