10 ways to manage your life and your mortgage right now
With interest rates soaring, mortgage repayments are about to get much more expensive for many New Zealanders – particularly those who bought property during the boom of the last two years and fix their loan for short term. Thanks to the perfect storm of inflation, global conflict, ongoing supply chain issues and widespread shortages, the cost of food, fuel, household goods and almost everything else is on its way up.
There’s not much the average person can do about the economy, but there are ways to help your household ride out the storm. It’s about knowing what you have to spend, avoiding hidden costs and unnecessary expenses, and not being afraid to shop around for the best deals.
Here are our top ten tips for financial success in a downturn:
1. Understand your spending
You can’t make positive changes if you don’t know what you’re working with. The first step to smarter financials is tracking your spending for 2to 3 months and coming up with a budget. Many banking apps will break your costs down in a graph to make it easier. you might get a shock when you find out how much you’re spending. Next on the agenda? Use your spending breakdown to identify ways to save – for example, trimming two takeaway meals a month could save you $100, or $1200 a year.
2. Work out what’s in store
We all know interest rates are going up – but what does that mean for you and your family? Check your current rates and repayments, identify when you will need to refix and calculate how much your new repayments are likely to be. The more you know about what’s coming, the easier it is to plan. For example, if you had an interest rate of 3% for a $500,000 mortgage with a 30-year term, you’ll currently pay around $973 fortnightly. If your new rate is 5.8%, that payment goes up to $1,373 per fortnight – a jump of $400. Your bank or mortgage adviser can be helpful to you.
3. Slash subscriptions and memberships
Those $12 subscriptions mount up surprisingly quickly. Take a look through your subscription services and cancel anything you don’t use regularly. Check the app store on your phone, your TV subscriptions and any real-life subs – like magazines, gym or yoga memberships. You don’t have to cancel absolutely everything – just consider which ones are worth the regular outlay.
4. Avoid extra fees
Paying penalties or extra interest means giving away your hard-earned money for nothing. That’s why it’s worth making an effort to avoid penalty fees, late payment charges and interest on credit cards. If you struggle to pay your bills on time, set up direct debits so you can’t forget. Set a reminder on your phone so you’ll always remember to pay your credit card on time – and if you’re struggling to pay it off, consider giving up the credit card altogether or consolidate all debts.
5. Shop around and save
Of course, you still need to make some purchases. When you do, compare prices, shop around and buy on sale if possible – particularly for larger purchases like whiteware. These days, price comparison websites make this simple. It’s also a good idea to shop around for your utilities and services – switching power and internet providers can give you access to sign-up deals and discounts. Some people change regularly, getting a new discount or offer every time.
6. Restructure your loan
Your loan structure can make a big difference to the amount you pay. If you’ve got a chunk of your mortgage on a floating rate, for example, you’ll be paying the top interest rate on that portion – and that adds up. Consider switching that part to a fixed-term rate to save some cash. If you’re really struggling with mortgage repayments, you can also look at options like switching to interest-only payments for a while, or even extending the term of your loan to reduce the payment amount. Global Finance “Mortgage Genius Plan” can be of big help to you. For more information you can contact 09 2555500 or visit www.globalfinance.co.nz
7. Resist the lure of online shopping
Online shopping is fun, but it’s far too easy to impulse buy. Reduce temptation by unsubscribing from marketing emails and – most importantly – taking your credit card details off your phone or computer. Make it harder for yourself, and you’ll be less likely to spend on things you don’t need.
8. Save save save
If you were lucky enough to fix your mortgage for a significant period, you might think you don’t need to worry too much. But it’s always wise to plan for the worst. Start socking money away now, and you’ll have a cushion of cash to fall back on when your rate does rise – or if something else comes up. Every little bit counts – even $50 a week adds up to $2400 over a year. However, think carefully about where you’re keeping this extra cash (see below).
9. Use spare cash to squash your mortgage
Why put money in savings when it could cut down your mortgage? Many banks offer a revolving credit option that lets you pay savings towards your mortgage and reduce the interest you’re paying without losing access to your money. For example, if you have $50,000 in a savings account and a $400,000 loan, you could put that money into a revolving credit facility, reducing your mortgage to $350,000. But instead of the money simply disappearing into your mortgage, you still have $50,000 available if you need it. If you withdraw $10,000 to pay for house repairs or buy a new vehicle, that amount is added to your mortgage, and you’ll pay interest on it – but not on the remaining $40,000.
10. Switch banks, gain cash
Switching banks and refixing your mortgage can seem daunting, but it can also be worth the admin and time involved. When rates are dropping and you’re locked into a long-term fixed rate, talk to a mortgage broker. If you can shift a large debt onto a lower rate, you may afford any break fees charged by your original bank. With many banks offering cash-back deals at the moment – some up to $20,000 – it could also earn you some much-needed cash.
Thinking of making some financial changes to help you cope with rising costs? Global Finance should be your first stop. Talk to our team for expert financial and mortgage advice – we’re here to help you through.
**These are general guidelines and are by no means a reflection of bank or lending policies