The only problem with this is that banks are regulated to...

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    The only problem with this is that banks are regulated to calculate serviceability on much higher rates than the loans they are writing.

    However, borrowers do not always borrow to their maximum serviceability, most people are prudent and borrow what they can afford to repay. So... in low rate environments they do borrow more. So your conclusion is right, but it's not really the banks causing it.

    As for rates rising, they will almost certainly one day get back to 6%(however probably not for a decade or more). However one thing that is often overlooked is the the principal amount is locked in at today's dollars. Over time people's wealth and income increases making repayments easier to afford. 30 years may be a long time but half way through (15 years) the value of $4796 has dropped dramatically thanks to inflation and wage increases. Imagine you could pay off your home at what is was valued at 15 years ago... yes please!


 
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