New Zealand's housing market has experienced a rapid increase to interest rates over a relatively short timeframe, with no immediate relief for homeowners yet insight. As home lending comes off much lower fixed term rates, this means higher mortgage repayments, potentially putting a strain on your finances.
However, there's a silver lining for some – you can restructure your home loan to make it more affordable in this changing rate environment.
In this blog post, we will explore the various options available to homeowners in New Zealand looking to adapt to the rising rate market.
Lets start by understanding the Rising Rate Market
New Zealand's Reserve Bank periodically reviews the Official Cash Rate (OCR), which is a contributing influencer to the interest rates set by banks. When the OCR rises, as it has been doing, banks tend to raise their lending rates, impacting your mortgage repayments. To tackle this situation, you have several options:
1. Refinancing Your Home Loan:
Refinancing involves switching to a new lender or renegotiating the terms of your existing mortgage with your current lender. This can be a strategic move to secure a lower interest rate and reduce your monthly repayments. This can also allow us to negotiate a cashback, and possibly extend your loan term. Contact us to compare the interest rates and terms offered by different banks to find the best deal.
2. Fixed vs. Variable Rate Loans:
Consider whether to switch from a variable rate mortgage to a fixed-rate mortgage. Fixed-rate mortgages offer stability because your interest rate remains constant for a set period, typically 1 to 5 years. This shields you from interest rate increases during that time. You can also look to split portions of your home loan so that you can essentially have 2 – 3 portions all fixed over different terms (for example 1/3 each on 1, 18 months and 2 year terms). This helps you avoid fast past rate increases or decreases over time as the whole loan portion is not all coming off one fixed rate at a time.
3. Extending Your Loan Term:
Extending your loan term can lower your monthly payments by spreading them over a longer period. However, keep in mind that this may result in paying more interest over the life of the loan. Evaluate the risk carefully and give us a call to discuss options.
4. Offset Accounts and Redraw Facilities:
Some home loans in New Zealand come with offset accounts or redraw (revolving credit) facilities. An offset account allows you to use your savings to reduce the interest payable on your loan, while redraw or revolving credit facilities lets you access extra funds made to your mortgage. These features can be used strategically to lower your effective interest rate.
5. Seek Professional Advice:
Get in touch! As your mortgage advisor I can provide personalized guidance on the best approach to restructuring your home loan in the rising rate market. I can help you assess your financial situation and choose the most suitable option.
6. Increase Your Repayments:
If you’re on a lower rate now, but due to come off your lower fixed rate soon, consider increasing your regular mortgage repayments now. If you set your new payment to be more reflective of the current rate payment, then you are acclimatizing your budget for when you do have to pay a higher rate/payment. And paying more than the minimum can help you pay off your loan faster and reduce the overall interest paid.
It's important to remember that each homeowner's financial situation is unique. Therefore, it's essential to evaluate your options carefully, seek professional advice when necessary, and make a decision that aligns with your long-term financial goals. In this ever-changing market, proactive steps can help you maintain control over your home loan and secure your financial well-being.