Options if You’re Struggling with Your Mortgage
Higher interest rates can be a painful adjustment, but if you’re struggling with your mortgage there are options to explore to help combat the impact (and the stress!) of higher rates.
What is appropriate for you depends on your situation, but here are some ideas for starters.
Exploring Options with Your Bank
- Interest-Only Terms: Discuss with your bank the possibility of switching to an interest-only mortgage for a period. This reduces immediate repayments, but it’s important to note that it will increase future payments.
- Repayment Suspension: You might be able to negotiate a temporary break from repayments. Again, this will result in higher payments later, but it can provide short-term relief.
- Extend Your Mortgage Term: Extending the term of your mortgage back to 30 years can lower your monthly repayments. This option, however, means you will pay more interest over the life of the loan.
- Hardship Applications: If you’re facing severe financial difficulty, you can apply for hardship assistance. This may include some of the measures above and can help prevent defaulting on your loan. It’s crucial to approach the bank before you miss any payments.
- Utilise Savings: If you have savings, consider using them to reduce your mortgage balance through a revolving credit facility. This allows you to pay down the mortgage while retaining access to the funds if needed.
- Offset Facilities: If you have family members with savings at the same bank, see if you can use their savings to offset your mortgage interest through an offset account.
- Rate Lock Options: If you’re concerned about rising rates before your fixed term ends, inquire about locking in a rate up to three months in advance.
Cutting Expenses
- Review Fixed Expenses: Shop around for better deals on utilities like power, gas, broadband, and insurance. Sometimes, increasing your insurance excess can lower your premiums.
- Refinance Credit Card Debt: Consider transferring your credit card balance to a low or zero-interest card. Consolidating other debts could also reduce overall interest and repayment expenses.
- Eliminate Unnecessary Subscriptions: Cancel any TV subscriptions and memberships that are not essential.
- Manage Day-to-Day Spending: Set a strict budget for groceries, dining out, and entertainment. Using cash or a separate account for these expenses can help avoid overspending.
- Freeze Discretionary Spending: Temporarily halt non-essential spending to build a financial buffer.
- KiwiSaver Adjustments: If you are contributing more than the minimum to KiwiSaver, consider reducing your contributions or taking a contribution holiday.
Generating Extra Cash
- Sell Unused Items: Look around your home for items you no longer need. Selling clothes, toys, fitness equipment, and bikes can raise significant funds.
- Reduce Vehicle Costs: If you have two cars, consider whether you could manage with one. Alternatively, selling a more expensive car and buying a cheaper one can free up cash and reduce debt.
- KiwiSaver Hardship Withdrawal: In extreme circumstances, you may be able to access your KiwiSaver funds through a hardship application, though the criteria are stringent.
- Increase Income: Ask for a pay rise by presenting a well-prepared case. Alternatively, take on a side hustle such as babysitting, dog walking, driving for Uber, tutoring, freelance work, or participating in paid surveys.
- Rent Out Space: Taking in a boarder or exchange student can generate additional income. Renting out your home and staying with family temporarily might also help reduce financial pressure.
Combining these strategies can help you manage higher mortgage rates and keep your finances stable, but it’s important to seek advice from your financial adviser first. The sooner you act, the better positioned you’ll be to handle the challenges ahead.
Want to know more about how we could help your situation? Book a consultation with an enable.me financial adviser and coach today to get a better understanding of how we can help you achieve your financial goals, and the experts you could be working with when you sign up to an enable.me programme. Consultations are $249*
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Disclaimer: This blog post is for informational purposes only and does not constitute individual financial advice. If you’re interested in receiving financial advice, you can book a consultation with an enable.me coach. Costs apply.
