SPREAD YOUR RISK

Homeowners in New Zealand are being warned to prepare for more interest rate shocks, as the Reserve Bank of New Zealand lifts the OCR to get the high cost of living under control, and lenders follow with interest rate hikes. For borrowers who are concerned about the prospect of higher mortgage repayments, splitting their home loan could help spread their risk. Here are some guidelines on what to consider when deciding how best to split your mortgage.

Global uncertainty and high inflation

Earlier in October 2022, the latest consumer price index was released, coming in well above expectations at 7.2 per cent in the three months to the end of September 2022. The ongoing high rate of inflation has the Reserve Bank lifting the official cash rate (OCR) a further 75 basis points to 4.25 per cent. For some homeowners that could mean higher interest rates on the horizon.

While some homeowners may be weighing up breaking existing fixed rates early and re-fixing at a higher rate to get ahead of further increases later this year, others are discovering falling property values have reduced their equity, which could mean they face a low equity premium as well as higher interest rates.

Homeowners who find themselves in this situation could reach out to our Mortgage Express adviser Nikki Kapadia to find out if a solution is available that doesn’t require being penalized with a low equity premium.

Spreading the risk over various loan terms

Deciding how much of the home loan to split or which loan terms to fix at will largely depend on your individual financial situation and affordability. The best way to determine that is to meet with a mortgage adviser to discuss your current circumstances with a view to any future changes that could impact your financial situation.

Meeting with a mortgage adviser

Things like a new baby on the way, a change to your living arrangements such as getting married or divorced, changing jobs or getting a promotion which would mean an increase in your earnings, are all factors to consider.

The first meeting is a bit like a “meet and greet” chance for to get to know each other We’ll go o your goals, talk about the type of property you w to buy, and assess how much you have to spend We’ll also give you an indication of which lende think would be right for you, and let you know if you ’ re ready to buy now or if you need to boost deposit, pay down some debt, or bump up your savings ahead of your application We can answ any questions, help you prepare a solid home lo application, and present it to the right lender.

Splitting your home loan and spreading your risk over a number of loan terms could help minimize the risk of higher mortgage repayments as interest rates continue to rise. At the same time, it’s important not to lock yourself into too long a loan term and potentially miss out on an interest rate downturn.

Getting a pre-approval

Before you start house-hunting, it’s a good idea get mortgage pre-approval With a mortgage pr approval, you’ll know how much a lender is prepared to lend to you provided certain condit are met So you won’t waste time looking at properties you can’t afford to buy!

Crunching your numbers

We can use our easy loan tools to make understanding your finances easier

Home Loan Repayment Calculator

By scrutinizing your current situation and understanding what’s on the horizon, both short-term and long-term, a mortgage adviser can help you determine your ability to afford the repayments on your home loan for the coming two to three years. That could help you decide which loan term would best fit your situation.

To find out how much you could borrow and wh your repayments could look like using different interest rates, loan terms, and repayment frequencies

Extra Repayment Calculator

Find out how much you could save on interest w an extra repayment to your home loan Test var amounts to see how you could shorten your loa term and reduce your interest charges

Split Loan Calculator

The fact is, there is no absolute right formula when it comes to splitting the home loan or choosing various loan terms, and what’s right for you isn’t necessarily right for another homeowner. And until the Reserve Bank has inflation under control, we may see further interest rate increases over the coming 12 to 18 months, which is why homeowners need to prepare for higher mortgage costs.

Work out your repayments when splitting part o your mortgage. You can also adjust the fixed rat portion to calculate various levels of savings

Kapadia

Mortgage Adviser