I was having a discussion with a colleague today about how the big banks are continuing to raise their interest rates regardless of what the RBA does, including ANZ who raised theirs today to 9.62 % p.a.
He was of the opinion that the interest rate rises are small in comparison to how much rents are increasing. I told him it wasn’t so but he just thought that I was trying to bend statistics to suit myself.
So I thought I would follow up here on a post from this blog from November 2007 where I showed the current ANZ interest rate and how much it would have cost to borrow money for our apartment compared to renting it. Back then, with interest rates at 8.32 % p.a. the weekly repayment would have been $956.06. Now, at 9.62 % p.a. it’s $1074.19 per week. That’s an increase of $118.13 per week.
Now look at our rent situation. Last October we signed a 12 month fixed term lease at $420 per week. So last November we were paying $420 per week, and right now we are paying $420 per week. That’s an increase of $0.00 per week.
To be fair, we were clever to lock in the rent we did when we did. But even if the landlord raises the rent $50 per week come November 2008, he will still be at least $70 per week worse off compared to a year ago, not even considering that Brisbane City Council inner city rates rose by up to 20 % recently.
And if anyone still thinks that rent money is dead money they should know that total repayments for our apartment at current interest rates total $1,675,736 (yes, that’s $1.675 million!) and interest alone is $1,125,736. Now that’s dead money!
I can’t see how it’s not clear.