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Nostradamus was a French astrologer, apothecary, physician, and reputed seer who is best known for his book – a collection of 900+ future event predictions. He’s probably got a better idea than we do and frankly, making predictions is fraught even at the best of times!
Our expectation is that interest rates will remain in the 6% range for the rest of 2023. We’re expecting the Reserve Bank of New Zealand (RBNZ) to increase the Official Cash Rate (OCR) a little bit at the end of February and short-term rates (i.e., one year or less) will probably go up to reflect that. Against that, we’ve seen longer term rates come down a tiny bit in recent weeks (I wrote about that here) so it’s an unusual situation we find ourselves in and not easy to predict.
A better question to ask is how do you manage the high-interest rate situation so you can keep your mortgage?
The top solution we have implemented for most of our clients is to split your mortgage into two or more chunks with a different fixed rate expiry on each chunk. If interest rates do fall within, say 12 months, then you’ll be able to pick up on that because one chunk was fixed short. If interest rates stay up or even increase, then you’ll be able to save, because one chunk was fixed for longer – it’s hedging your bets, and protecting yourself against loss by supporting more than one result.
I’ve been surprised by the number of people who have a modest lump of cash lying around and it can be useful to put that into the mortgage to soften the impact of interest rate increases too. Check with us before you do that though, especially if you envisage the need to access that cash in the future.
Most of the time, the way to find a solution to a problem
is by understanding the problem better.
Your habits and behaviours will be the biggest thing to address. Do you really, really know your outgoings? Not just in general, I mean more like, how much money do you spend every day? In our experience, it’s the outgoings that need addressing to solve the problem of dealing with higher mortgage payments. Obviously, it doesn’t make high-interest rates go away, but it does give you more control in surviving a year and getting through this.
You may have read a previous article about this online tool we have that categorises your spending over the last six months. It uncovers all the little things you forget you swiped that piece of plastic on or subscriptions that keep coming out of your account without you realising it. Please ask us how to make the tool available for you.
With this assessment, you can then project how much the interest rates will impact you. You might not need to sell a property or put off the subdivision or investment. Financial awareness is far more important than breaking your mortgage into chunks.
Follow these strategies and we’re positive you’ll make it through this squeeze period in good shape. Feel free to get in touch to use our whizzy tool and take out half the work for you.