Feeling the pinch: Dealing with rising mortgage rates

Some homeowners are doing it tough as those who took on debt at historically low interest rates refix their mortgages at much higher rates.

There are fears thousands of first-home buyers will be tipped into financial distress by rising mortgage rates, as the Reserve Bank battles inflation.

Many will be paying thousands extra each month to service their mortgages.

Taupo¯’s mortgage maestros say people who were not prepared for the hike in mortgage rates will have to look at reducing spending in other areas or offering rooms for rent to bridge the gap.

According to interest.co.nz, the interest rate on a standard twoyear mortgage is 5.85 per cent at ANZ, 5.25 at ASB, 5.25 at BNZ, 5.69 at Co-operate Bank, 6.19 at Kiwibank and 5.79 at Westpac.

Mortgage Link Taupo¯ ownerdirector Wendy Yorke says as there is little people can do about rising interest rates, they need to look at other areas of their spending. “I was at a conference last Friday where they said 50 per cent of mortgages in New Zealand are going to come up for refixing in the next 12 months.

“A lot of people are around 2 or 3 per cent interest rates so they could see those doubled. There’s nothing anyone can do so people will obviously have to look at their spending and adjust their habits to cope.”

Yorke says the hike in interest rates was predicted, but it has come around faster than expected.

“You could fix shorter term at a lower rate, but then you run the risk of it being higher still when that term is up. They think it will take a couple of years to get inflation under control. So, it sounds like rates will be quite high for some time.”

She says the worst thing to do by anyone who has concerns about their mortgage interest rate going up is put their head in the sand. “There’s definitely worry about the rate getting up to 7 or 8 [per cent]. Whether it does, I hope not, because the Government doesn’t want to see everyone in a mortgagee sale situation, they don’t want to destroy the economy.

“People will look at other measures to help, like getting a boarder or flatmate, and if people are distressed they can do interestonly for a period of time.

“Talk to the bank or an adviser as soon as possible to come up with a plan of attack. There are options.”

Zest Brokers Insurance & Mortgages Taupo¯ financial adviser Nicole Drought says her clients knew the interest rates would not stay low forever and most were prepared.

“I’ve been preparing my clients for this during the last year or two, so it’s not a big surprise, and 99 per cent of them are okay.”

Her advice to those with concerns about refixing was look at discretionary spending and talk to an expert.

“Things just have to get cut if you want to afford the increase. Of course, you can shop around too, make sure you’re getting the best rate possible.”