Last week, we shared that interest rates are rising, and what that means for you. If you missed that blog post, you can read it here.
Today, we’ll share some tips and tricks with you to battle these increasing interest rates.
First thing you can do is think about ways you can increase your income. If you have a 500K mortgage and your interest rates increase by 1% then you now pay another 5K in interest rates per year, or $100 per week.
So, how can you increase your income with $100 per week? Actually, there are several ways you can do this. Sometimes you just have to be a little bit creative and think outside the box.
Negotiate a pay rise
It’s not exactly newsflash that there is an acute labour shortage in New Zealand, and employers across the country are struggling to find skilled workers. If there is ever a good time to ask for a pay rise, now is that time.
Your children might not be too stoked about this, but if you have older children who are living with you, it could be time to start charging them board. Alternatively, if you have a spare room you could consider getting a flatmate.
Have you ever considered Airbnbing your house over Christmas if you’re away anyway? Or while you’re on a weekend getaway? Or on a holiday? This is relatively easy money to make, and if you’re not home anyway, why not utilise that opportunity and earn some cash? If you get a friend to refer you, Airbnb will give you an additional $700.
So, what does this mean? It means that you only pay the interest on your mortgage and not the actual mortgage. This can be a really good short-term solution to get through rising interest rates. However, the banks rarely ever grant you this if you ask for it on your owner occupied house, which is exactly why you want to work with a mortgage broker so we can help you make this happen.
Reduce your KiwiSaver contributions
The next option is reducing your payments to your KiwiSaver if you are paying above 3%. If, for instance, you are putting 6% into your KiwiSaver, you could consider reducing this to the minimum 3% to free up cash flow while interest rates are high.
The downside is that if you pay less into your KiwiSaver, you’ll invest less, however, if it means you can hold onto your property, it most likely is a good trade-off. Just remember, that it is not a long-term solution.
Restructure and refinance
Perhaps it’s time to take a look at how your mortgage is set up as restructuring it could maybe help you combat increasing interest rates. For instance, you could consider reducing your mortgage payments to free up cash flow while interest rates are high.
Let’s look at an example.
Say you have a 500K mortgage on a 15-year term. If you want to free up an extra $100 per week, you can do so by extending your term a bit. Yes, this means that you will pay off your mortgage a bit more slowly, but once the interest rates come back down, you can change back.
Work with a mortgage broker
Lastly, we always recommend that you work with a mortgage broker to get advice tailored to your financial situation. At The Mortgage Whānau we can help you implement these strategies, and see which ones will work the best for you. You can book a free 1-hour strategy session with us, so we can go over your mortgage and finances together.
Everything shared in this blog post is the opinions of The Mortgage Whānau, and it is general advice. It is also important to mention that none of these solutions are long-term. They are short-term solutions to help you negate the increasing interest rates that we are experiencing at the moment. Furthermore, the examples used in this blog post are fictional and are only meant to illustrate a point. For tailored advice, you need to talk to a mortgage broker. You can book a strategy session with us here.