Last week’s rate rises by the big banks will be an annoyance for many mortgage holders, but will not substantially hit household budgets – for the average mortgage of around $450,000, the hit will be $50 to $60 a month.

But what if rates go up substantially within the next few years?

As Stephen Koukoulas, managing director of Market Economics and former economics adviser to Prime Minister Julia Gillard, reminded me last week, Labor’s attempt at banking reforms included a provision to make banks warn borrowers to factor in an extra 200 basis points – a rough stress test to remind them that rates don’t always stay low.

On a mortgage of $450,000, a 200 basis-point jump would strip $550 out of your monthly budget. Ouch.

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The chance of large interest rates hikes in the years ahead is small, but it’s the size of the debts Australian households now carry that is the problem.

So what to do?

Well the first thing is to apply that 200 basis-point test, and ask what you could give up if it happened, say, two years out.

For many first homebuyers, the answer will be ‘not much’.

Westpac triggered the “rogue” rate rises, independent of the RBA, nearly two weeks ago. Photo: AAP

The probability of young couples popping out one or more children in the next few years, for example, mean substantially higher monthly outgoings, not lower.

And given the debt-saturated nature of the current housing market, the fallback position of “oh well, we’ll just have to sell the house” may not be an option.

As explained last week, risk in the housing market is heavily skewed to the downside at present. ‘Selling out’ is difficult if you’re in, or close to, negative equity on your home loan.

So best not to get into that situation. In many ways, the key for homeowners is not money, but time.

A number of banks currently offer three-year fixed rates of around 4.5 per cent, which means you’re rate-hike proof until late 2018.

But what if you come off a rate of 4.5 per cent, and onto a rate of 6.5 per cent or higher?

One strategy Mr Koukoulas suggests is to take the “insurance” offered by a three-year rate, and while making historically low monthly repayments (for a given debt level), use those years to get ahead in your repayments.

That can be done with an offset account linked to your loan, or by paying down a redraw-style loan ahead of schedule. Or it could simply involve dripping money into a fixed-term bank account.

That way, if you’re clobbered by a $550 extra payment per month in 2018 you’ll at least have time to consider you options – find more work, sell one of the kids, that sort of thing.

Another way to cope is to use a fixed-rate product to ‘time the market’.

A nation crippled by high interest payments is a real threat to out future. Photo: Shutterstock

Fixed-rate loans usually come with sliding-scale break fees. While nobody likes to hand over ‘penalty’ cash to a bank, sometimes it makes sense to do so.

If, at the 2.5 years mark, you see nothing but upward pressure on interest rates, it can be a calculated risk to pay, say, a $2000 break fee so as to fix your loan at a manageable level for another few years.

If that scenario played out, a young couple facing an uncertain future could get five or six years of relative peace of mind.

Make no mistake, with household debt at record levels, the main housing-related threat to the economy is not a cascading series of sell-offs due to a housing price crash.

Rather, the real threat is a nation crippled by high interest payments a few years out.

It’s in the individual’s, and the nation’s, best interests to manage the debts we have sensibly – hopefully so that nominal wages at last start to gain ground on sky-high house prices and mortgages.

In the meantime, work out the very most you are likely to be able to afford in the years ahead to see if something like a 200 basis-point rise will wipe you out.

And if it does, it might be worth reading The New Daily’s piece ‘A nation of happy renters?‘

Read more columns by Rob Burgess here