Mortgage rates started rising at the tail end of 2021 – and with the OCR now predicted to stay up at 5.5% into 2024, it’s not likely we’ll see interest rates drop this year.
Given how long it’s been since rates last went up – we went seven years without an interest rate hike – it’s understandable if that worries you a little. Especially if you’re one of the 30% of Kiwis whose fixed-term mortgage is due to roll off in the second half of this year.
But don’t toss and turn over it – there are ways to put those worries to bed.
Where to start
Start by checking what you’re currently paying in interest, what fixed rates you have in place, and when those rates expire. We need to understand your current situation before we can start making changes!
If paying the mortgage is already hurting, we have a problem. The window of time to address it is however long you’ve got until your fixed rates expire – because at that point, it’s going to hurt more.
If paying the mortgage is fairly comfortable right now, run the numbers on how much more it’s likely to cost you when your fixed terms expire. For reference, one-year fixed rates currently average at about 7%. If you locked in rates in the twos, that would be more than twice the rate you’re paying now. If that figure is going to hurt, we need to address it before your current term expires.
Healing the hurt
Your options for addressing either of the two previous situations might include talking to the bank about extending the term of your mortgage to lower the repayments, taking a break from repayments while you get your financial house in order, going interest-only for a period of time.
All of those options have costs and consequences and some of them are ones you can only utilise once, so it’s worth seeking independent financial advice to help guide you navigate those decisions.
Simultaneously, you also need to look at how you can improve your own financial management, as making savings there is something you have the most direct control over. Plus, given most people fritter about 15% of their income, finding that money could change the game.
Focusing on income
Another key area of focus should be on how to increase your income. While unemployment is still low the balance of power lies with employees – so it’s an opportunity to make the case for a pay rise or look for a new job with better pay. With inflation running hot at 6.7%, if you don’t get a pay rise, your income has fallen in real terms.
If your employer doesn’t have the funds to pay you more then discuss what other options you could benefit from. This could include buying into the business, ongoing education or professional development, a car park, more flexible hours that allow you to cut down on childcare costs etc. There are always multiple ways to ‘skin the cat’ which can still serve to improve your financial position.
You may also be able to create a financial buffer by setting up a side hustle or even selling off unused or upcycled household items – anything that’s going to give you some financial resilience in the face of rising costs.
If paying more in interest is more of a niggle than a headache, then it’s time to start taking your financial progress more seriously, because clearly – you’re capable of more!
It’s important to understand that what is going to have the biggest impact on how much interest you pay in total is not the interest rate, but the pace at which you repay the debt. Could you take this opportunity to restructure your mortgage in a way that you could pay it off and progress faster?
What would your life look like if you could get mortgage free in 10 years instead of 25 or 30?
Plus, this isn’t just about the mortgage – it’s about creating the capacity and the potential to grow your wealth and give yourself options to live life the way you want to. Growing wealth is something that needs to be taken seriously amid high inflation because the cost of not making the most of your opportunities is high right now – any return below 7% is eroding the value of your money.
Disclaimer: This blog post is for informational purposes only and does not constitute individual financial advice. If you’re interested in receiving personalised financial advice, you can book in a consultation with an enable.me coach. Costs apply.