What is the "money illusion"?
People see cheap interest rates and think it means cheap borrowing, without realising that it is the difference between interest rates and inflation rates that matters, ie the 'real' interest rates.
To put it in plain english - 10% interest rates, with 10% payrise each year, means that a mortgage is cheap. 5% interest with 3% payrises means mortgage is expensive.
Other definitions from Google:
"Refers to the time lag between receiving increased money incomes and the realization that prices have all gone up, leaving consumers and firms no better off than they were before money incomes went up."
"Mistaking changes in nominal values for changes in real values; failing to allow for inflation."