For example, households have taken advantage of low interest rates to refinance their mortgages, in the process both lowering their monthly house payments and using accumulated equity to pay off more expensive forms of consumer debt, such as credit card debt. Likewise, firms have lengthened the maturities of their debts, lowered their interest-to-earnings ratios, and improved their liquidity.
Unlike variable-rate borrowers, whose required mortgage repayments have risen alongside increases in the cash rate, fixed-rate borrowers face a large and delayed jump in their mortgage payments, depending on the term of their fixed-rate loan. Fixed-rate loans peaked slightly above 35 per cent of all housing credit in early 2022, compared with a pre-pandemic average of closer to 20 per cent (Graph 2).