How to manage your mortgage in 2023

Written by Money Empire

March 22, 2023

Interest rates are climbing. Managing your mortgage this year in 2023 seems like a crazy ask, especially after how good a lot of Kiwi’s had it for so long. With the steady rise in the OCR, the Reserve Bank of New Zealand trying to create a recession, and the tough cost of living, it’s easy to see how difficult money management is becoming.

In 2020, New Zealand Aotearoa saw some of the lowest interest rates ever historically seen. Some banks dropped their rates to as low as 1.99% Fixed for 1 Year. And with that, the frenzy began. People snapped up houses on average up to $300,000 more than what they were listed for at auctions. The market was overvalued and first home buyers were struggling to even get their foot on the ladder. 

Many of us are due for a fixed rate rollover this year. With the average home loan interest rate sitting at anywhere between 5.50% and 7.50%, this will put a heap of pressure on Kiwi households. How does anyone manage their mortgage with all of this stress creeping in?

  1. Start with a budget

Spending tends to happen while we’re on auto-pilot. Your kid needs $20 for school, you want to grab a coffee on the way to work, or you forgot about that movie subscription from a couple of months back. Things like this can add up fast, especially if you’re not checking your bank accounts daily. 

Managing your mortgage starts first and foremost with a budget. Knowing the basics of your incomings and outgoings brings you empowerment. You know when you go up to the machine to swipe your tap your card, you can afford that $6.70 oat milk flat white, rather than chucking it on a credit card. 

Speaking of budgets, we’re on one. There are heaps of free and available resources online for you to create a monthly, fortnightly, or weekly budget. It’s easiest to work within the time period of your income. There are plenty of tools to help make the data analysis easy as well, and a heap of them are free.

  1. See what is available earlier for you to refinance

You don’t have to wait until it gets to crunch time and all of a sudden you have to lock in a new rate. Reach out to your adviser and see if you can get in quick before they go any higher – only if this applies to you. See if you can even make up any short term costs by going to another bank and getting a mortgage cashback – of course again this is only if you are eligible. 

Refinancing and locking in a new rate ahead of time often brings security and stability of your financial future. 

  1. Plan for next year.

If you can, try to stay up to 18 months ahead of your budget. Planning for the long term will only help – not hinder. This is especially true if you know your interest rate is about to jump over 1%. Give yourself as much time as possible to make any adjustments in your financial planning, and get your house in order, and those ducks in a row! 

If your child is about to enter another school year and requires a different uniform, build this into your future budget. Got a couple of teenagers and they seem to be making the food bill climb? Add this in too. If you know midway through next year you’ll need a break – factor this in. 

  1. Be smart with your money.

Saving money can be as simple as not buying a second beer or glass of wine when you’re out with mates. A budget and managing your money can still work within your lifestyle – you’re allowed treats and fun while you’re budgeting! Maybe you need that second coffee a day to keep your sanity (especially if you’re a parent). What else can you cut out to mitigate that cost and free up your cashflow?

  1. Keep up your KiwiSaver 

What we’re seeing is retirement costs are also growing steadily too, especially as people are living longer and we have access to better medicines. It’s very rare we would suggest pulling back or pausing your KiwiSaver as the cost of living is rising and everyone deserves a happy retirement! Sometimes pulling back to a 3.00% contribution can be enough to give you some breathing room, even for a while.

If you are looking at pulling back on your KiwiSaver contributions, see what you can do in a future state or future budget to catch up. While taking a KiwiSaver holiday may seem like the easiest thing to do to free up even more cashflow, it’s something we recommend against. 

  1. Avoid any debt or consumer finance if you can 

Naturally racking up debt means this additional money to pay. Accidents happen, emergencies can lead anyone’s best thought out financial plan astray, but trying to bridge the daily spending gap through a credit card will be unhelpful in the long run!

  1. Consolidate your debts

Anything with a high interest rate on repayments, like a car loan or a credit card, figure out what you can do to pull them into the mortgage or pay down quickly. Debt consolidation is one of the best ways to manage any and all of your debts into one smooth repayment plan. 

  1. Look at any interest-only options

If you’re a property investor and you’re really feeling the pinch, this could be an option for you. A short-term solution (sometimes around one to two years) allows you to pay off the interest-only portion of your loan which can be especially helpful even if you are going down to a single income. You’ll still need to pass the bank’s criteria to be eligible for this. 

  1. Stay positive and share your concerns with your financial adviser.

We sound like a broken record! Economies are cyclical. We’ve seen this happen and we will see it in the future. If you are getting worried, there is no shame with reaching out to your financial adviser. It’s quite literally their job to have their finger on the pulse of the economy and the housing market.

While we’re doubtful the next 12 to 18 months will be financially the easiest, the purpose of these rising interest rates is to manage the economy. This will settle down. Keep pushing through.
None of this article is to be taken as specific advice and is generalised only. For any specific advice, please talk to your financial adviser or get in touch with one of us here at Money Empire.

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