It’s hard to imagine taking out a home loan with an interest rate of 17% per annum or higher, yet that was the reality for homebuyers in the late 1980s and early 1990s. And back then it would have been just as hard to imagine home loan interest rates of less than 3% p.a. The point is, ultra-low interest rates are not the norm, and while it might be tempting to load up on debt when interest rates are very low, it’s important to understand what can happen to loan affordability when interest rates rise. A (very) simple example Sarah and Evan have just taken out a $500,000 variable rate owner occupied home loan at an interest rate of 3% p.a. With a 25-year term the repayments are $2,371 per month. But what happens if, overnight, their interest rate jumps to 8% p.a.? Those repayments would suddenly become $3,859, an increase of $1,488 per month. Of course it’s extremely unlikely that interest rates would double or treble overnight, but even under a more realistic scenario th...