Higher interest rates for Aussie mortgages

Ouch:

Interest rates are set to rise for hundreds of thousands of mortgages - regardless of official increases by the Reserve Bank - because lenders are struggling with a global credit squeeze caused by the crisis in the US housing market.

The big banks could follow non-bank lenders such as RAMS Home Loans, which yesterday flagged its financial distress, leading to predictions that it may have to pass higher borrowing costs onto customers.

Non-bank lenders such as RAMS account for 30 per cent of the $830 billion mortgage market, and have been able to offer low-cost mortgages by borrowing cheaply out of the US.

With so much focus upon the Reserve Bank's interest rate (currently at 6.5%) we can often forget that the market itself sets its own interest rates. Basically this means that, with this "credit crunch" going on, all forms of lending (mortgages, personal loans, credit cards) will increase their interest rates higher than what the reserve bank has set.

Pay off those debts. Put your money into cash management accounts or government bonds.