Love Your Money

17 Nov 2022

Love Your Money

LOVE YOUR MONEY  

If your home loan interest rate is coming up for review shortly, then this information is for you!

By being proactive, and talking to your adviser, you can put together a plan, and remove some of the fear that higher interest rates can generate.

A few tips to help manage increased interest repayments.

  1. If you know you have a rate coming up for review, start putting money aside to help cover it.  Be prepared!
  2. Go through your bank statements and see where you can reduce expenses.  We personally spend a lot each week at the local four square, on top of a big supermarket shop and takeaways!!!  With a little more attention, we could reduce our food costs easily and divert funds to higher interest payments.
  3. You can have a look at the excess you pay on your insurance.  You could talk to your Insurance Adviser to see if you could increase your excess and reduce monthly costs now.  Once again, this doesn’t have to be forever!
  4. Can you consolidate personal debt with your home lending?  If you have personal debt, it is highly likely you are paying a higher interest rate than you would be on your home lending
  5. You could talk to your adviser about interest only for a period of time.  This could be on all, or part of your lending.  Once again, this is to help you get through this cycle of higher interest rates so that you can return to reducing your lending.

Remember to keep in mind that this won’t be forever!  Rates will come down again at some stage, at which time you will likely feel you have more cash to play with.

This week from Independent economist Tony Alexander:

Over the past month since I wrote my last article there have been two main developments of relevance to where interest rates are heading, with both of them to do with inflation. First of all, here in New Zealand the annual inflation rate came in much higher than expected at 7.2% and this led to a fairly strong jump in wholesale borrowing costs facing banks.

Banks responded by raising their fixed mortgage rates about 0.5% across the board not just because of the high inflation number but because they could see that their hopes of interest rates falling soon and restoring margins were misplaced and the time had arrived to try and get fixed rate lending margins back towards average levels.

After the round of mortgage rate rises those margins were actually still quite a long way from average. But that brings us to the second inflation development in this past month and it has come out of the United States. The most recent monthly inflation number there was better than expected and this has led to a general view that the Federal Reserve may not need to raise interest rates as quickly as had previously been feared.

That has contributed to an unwinding of about half of the interest rate increases in New Zealand a month ago. But because margins for banks are still below average, we shouldn’t expect a round of fixed mortgage rate cuts in the near future. But we could easily see a view soon develop that there might not be any more increases. We’ll have to wait and see how that goes because the simple truth is that everyone’s forecasts for interest rates over the past 12 months have been wrong all over the planet.

I can see from my monthly surveys of real estate agents and mortgage advisors that the mortgage rate increases have caused buyers to take a step back from the market. But with incomes rising relatively firmly, banks very slowly easing up their lending criteria, net migration outflows slowly becoming less bad, and predictions of how high the unemployment rate will go being scaled back, it is not hard to imagine the buyers coming back into the market again fairly soon as we head into summer.

For additional information on the economy, housing market, and interest rates, you can subscribe to Tony’s free weekly Tony’s View publication at www.tonyalexander.nz

Disclaimer:  This newsletter is meant to be informative and engaging, hopefully not a cure for insomnia.  Please don’t take this as personalised financial advice.  Discuss your situation with an Advisor.  This is where I need to say past returns are no guarantee of future returns.

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