Considering Selling Your Home Due to Rising Interest Rates?
Nearly 50% of all fixed-term mortgages in New Zealand will be coming up for refixing this year. Many homeowners are struggling with how they will afford the increased cost of repayments due to the interest rate rises. Some are looking at selling their homes as the only solution. Before you take the step to sell your home and go back renting, we recommend you consider your options before making that final decision.
Ultimately at the end of the day, the choice is yours, but it pays to explore all options first, especially as in the current market, you may end up selling your home for less than you bought it for!
Extend the Term of Your Mortgage
Talk to your mortgage broker or bank about the possibility of extending your mortgage term length. Most people get a mortgage with a term of 25 or 30 years and that reduces each year the loan is paid down. You may be able to extend the term back out to 25 or 30 years, therefore spreading the cost over further years, and reducing your repayment amounts right now. (This would mean you would be taking longer to pay the mortgage off and paying more interest).
Interest Only
You may be able to amend part or all of your mortgage to interest-only payments. Often this function is allowed by lenders for up to two years. It could be an ideal option to get you through these extra tough times and then hopefully when you return to paying principal and interest, the environment has settled.
Increase Your Income
One way to support the increase in your repayments is to increase what you earn. Appreciate this sounds easier said than done, but there are a number of options for this if you’re willing to put in some extra effort. From getting an additional job (e.g. night or weekend work if you work during the week), taking in a border, or having an international student stay with you. These options would top up your income.
Also, get creative and think outside the box. You may already have things available to you that you can monetise e.g. abundant fruit and vegetables, a garden full of flowers you could bundle up and sell, lawnmower for mowing the neighbours lawns etc.
Reign in Your Spending
This may sound obvious, but if your income is not increasing but your expenses (e.g., mortgage repayments are) you need to look at your budget and look at where you can reduce spending. You need to be realistic and ask yourself what is ‘essential’ versus what is a ‘want’. This can be really tough. Reducing day-to-day discretionary spending can have a big impact though. We recommend you do a detailed budget so you can identify where there might be areas you can tighten up.
Changing Loan Structures or Lenders
Sometimes a change in the structure of your mortgage i.e., moving from a floating to a fixed rate, or moving your mortgage to another lender, can save you money. It’s recommended you talk to a professional before making such a change as it’s often challenging to calculate the full amount of savings you’ll make by this change.
We understand being in a situation where you’re considering selling a home you’ve worked so hard to get, is stressful and emotional. It also leaves many people feeling overwhelmed and not knowing what to do next.