Your Mortgage Survival Kit for Rising Payments.

If you’ve come off a low fixed mortgage rate or are just about to, and you’re worried about how you are going to afford the extra mortgage repayments, then please read on.

In this article, we’ll walk you through some strategies to help you manage the impact of rising interest rates on your finances and put your mind at ease!

Let’s Get Back To Basics – Understanding Your Current Financial Position.

The first place you want to start is by calculating your net income (what you get in the hand) from all sources, including salary, rental income, and investments.

Then, categorise your expenses into fixed expenses (things like mortgage payments, or insurances which are the same fixed amount every month), and variable expenses (things like groceries, power and entertainment which have varying amounts every month).

Once you have these figures, pop them into a budgeting tool like the new Budget Planner from Sorted which will help pinpoint where you can cut back in order to free up some funds to go towards your new mortgage repayments.

How’s Your Financial Health Looking? Evaluating Your Assets and Debts.

Once you have gone through the Budget Planner and pinpointed a few areas where you can cut back, it can be helpful to look at your assets vs your debts.

How many cars do you own and how much are they worth? Do you have a caravan, boat or other leisure vehicles?

Make a list of all assets, including savings, investments, property, and vehicles.

Then list all debts, differentiating between what’s a “secured” debt (e.g. mortgage, car loans) and an “unsecured” debt (e.g. credit cards, personal loans & hire purchases).

Now look at what you can potentially sell/downgrade in your assets list to eliminate the debt with the highest interest rate and therefore the highest repayment amount.

#hint: these will be the debts in your “unsecured” debts list.

By doing this exercise you can quite quickly see that the repayments you were making on the high interest debt can be going towards your increased mortgage payment.

How Do You Manage Your Money?

The 70/20/10 rule is a popular way to manage your money and allocate your income efficiently across needs, wants and savings.

Let’s look at an example of how this works in practice.

Let’s say your household monthly income was $8,000:

70% ($5,600) would stay in your designated account for all your needs, e.g. mortgage, bills, food and transport.

20% ($1,600) could be set aside for your wants, e.g. social outings, new clothes, or a short trip (you still need to have a life!)

10% ($800) is set aside for savings and not touched. This could be used for a large financial goal, renovations or your emergency fund. In 12 months you would have a nice buffer of $9,600 which you could partly use to make a lump sum repayment off your mortgage, further reducing those mortgage payments!

If you automate your finances with automatic payments for bills and savings, you will start to live well within your means and be well-equipped to adjust your budget and savings strategy in response to changing interest rates.

Exploring Refinance and Loan Restructuring Options

When the financial tide turns and you find yourself grappling with the current mortgage interest rates, it’s time to consider whether refinancing or restructuring your loans are viable strategies to keep your head above water.

Refinancing Your Mortgage.

1. Shop Around

Work with a Mortgage Adviser to explore different lenders who may offer more competitive interest rates or flexible terms than your current provider.

2. Negotiate Terms

While banks generally stick to advertised rates, there’s normally room for negotiation. A Mortgage Adviser can take care of the negotiations on your behalf too!

Restructuring Your Loan.

You could look to extend your mortgage term or switch to interest-only payments, which can reduce your monthly burden. However, you can end up paying more interest in the long run so it’s best to work out a solid repayment plan if you choose to take this option.

Splitting your mortgage over different fixed rates can also help to lessen the impact of rate rises. A quick chat with a Mortgage Adviser will help determine which option is right for you.

At the end of the day, it’s really about going back to basics and keeping it simple. Hopefully you can integrate some of these strategies into your ongoing financial plan to ensure you can weather any financial challenges that come your way.

As always, feel free to reach out if you need a hand!

Applications for finance are subject to meeting the lenders criteria, terms, and conditions. Refer to our website www.hbmi.co.nz for our Public Disclosure Document.