Today many New Zealanders are feeling the strain of the high cost of living, particularly with the high mortgage interest rates. The rate increases are due to the economy’s inevitable rise and fall cycle, and no one expects interest rates to remain high long-term. But in the meantime, it requires many Kiwis to tighten their belts. We’ve outlined some strategies to help you cope with rising mortgage interest rates and increased expenses generally.
Check your mortgage structure
Your mortgage structure is important. It should have multiple fixed-term accounts that become due for refixing at different periods of six months or more apart. This strategy protects you from interest rate shock. This means that when interest rates have increased at the time of refixing, only part of the total mortgage is affected.
Many mortgage providers offer useful account options, such as revolving credit accounts. Debt in these accounts is charged a floating interest rate, which is usually higher than fixed rates. So, it may be worth changing to a fixed-term if you have a floating interest account but don’t need the flexibility it gives you.
Have you reviewed your mortgage recently? If not, now is a good time to check your structure with your Mortgage Broker. There are many reason’s why you should use a mortgage broker – We can check to see if any savings can be made.
If you’ve tightened your spending in every practical way but you’re still not keeping up with expenses, it may be the right strategy to restructure to a longer-term mortgage. This will decrease the principal payments but will cost you more in interest long term – so it should always be done with caution.
Be strategic about your debt
Debt is expensive, and when it’s unrelated to an asset such as property or your education, it’s just a lodestone around your neck. You already know that debt is best paid down quickly. Unfortunately many people still miss a critical step; approach all of your debt as a whole and be strategic in how you approach paying it off.
- Get a clear picture of how much is owed for what and the interest being charged on each loan.
- Structure your payments to pay off the debt with the highest interest rate first while keeping up with minimum payments on the rest.
- Put automatic payments in place so you don’t accidentally miss a deadline and incur late fees.
If you have credit card debt, a balance transfer may be a good move for you. This is when you transfer your credit card debt to another provider. These providers offer low-interest rates (sometimes 0%) for any debt transferred. The amount of interest, fees, and reduced rate period varies significantly between providers; check out this handy credit card rates comparison table to find the right option for you.
Consolidating debt means combining debt from multiple lenders into a single loan, with a single lender. This can save you a lot in interest and simplify your finances, making them much easier to handle. This also helps with reducing stress and time spent managing your payments. We can help you discover if debt consolidation is right for you and then find the right lender, managing the application process for you.
Look for income opportunities
Many Kiwis feel uncomfortable with the idea of increasing their income. It’s certainly not an easy thing to do, but when you’re struggling to pay bills, it’s got to be at least considered. Is your current job paying at least the industry standard? If not, it could be time to negotiate with your employer? Or could you look elsewhere? Are there opportunities to take on more responsibilities, for more pay? If the answer isn’t clear, we suggest you talk to your manager about career pathways, letting them know you are interested in progressing.
If the above feels too intimidating, start by looking around your home for anything of value that you don’t want or need. Put it all on Facebook Marketplace or TradeMe and get both extra cash and a decluttered home.
If you can’t increase your income, the next best thing is decreasing your expenses, which brings us to the next topic…
Make a budget
Spending money is easier than ever! With no cheque books or ledgers to balance, it’s easy to be unaware of where your money is going. But while technology makes it easy to ignore your spending, it also makes it easy to track. Export your last three months or so of bank statements into a tool such as Excel, to analyse your spending habits quickly. From there, you can identify where you can cut back on unnecessary spending. Make a budget using one of the many templates out there. We love Sorted as a resource for tools and information.
The difference between a budget that works and one that doesn’t, is whether you keep returning to it. A budget isn’t a static thing. You need to refer to it regularly, check planned against actual spending – then learn from it. Remember to update your budget, as your finances and needs change. If you make budgeting a habit, you will benefit hugely from the knowledge and control it gives you over your money.
Are you in the habit of taking on new debt impulsively? If so, budgeting will help you make better choices. If you’re finding expenses a challenge, taking on more debt may give you some relief in the short term, but will cause more pain in the long run.
Take note of the mortgage interest rate forecast
At the time of writing, the Reserve Bank of New Zealand has opted to raise the Official Cash Rate (OCR) from 4.25% to 4.75%. They are doing this, as an effort to get inflation under control and stave off a recession. This decision impacts any interest rate forecast, as interest rates rise and fall with the OCR.
Stay current with the latest interest rates and take the time to understand what it may mean for your mortgage. Especially when it comes time to refix. Check out our mortgage calculator to know the actual impact on your wallet, when interest rates increase or decrease.
If this article leaves you with more questions than answers, good! Everyone’s circumstances are unique, and there are exceptions to everything. If you need specific advice, please get in touch. We have experience in helping clients improve their finances under any circumstances.