Despite the fact that New Zealand is currently experiencing relatively low-interest rates, mortgage stress is something that a number of Kiwi homeowners experience.
Mortgage stress is an issue that can impact any homeowner, regardless of whether they are seasoned investors or first-time homeowners. Managing a home loan is stressful, no matter how big it is or how much experience you have. However, there are strategies you can put in place to minimise the impact it has on your life.
Mortgage stress or ‘home buyer stress’ is a growing concern both here and over the ditch. It generally, refers to the stress that is associated with managing your mortgage repayments.
With the rapid rise in house prices that were felt across the country, especially Auckland, a lot of people jumped onto the property ladder without careful consideration or financial planning. Which has lead to a lot of individuals over-committing themselves and putting upwards of 30% of their income towards their mortgage repayments.
While this may have been manageable at the time, this combined with additional consumer debt and the possibility of rate rises looming, any change in the interest rates could see these people really struggle to manage their finances.
Completely avoiding stressing over your mortgage is probably unavoidable. However, with careful planning, you can manage your stress levels and save your hair colour.
Firstly, when you are buying a house, try to stay within your limits. Don’t stretch yourself for that mansion in Mission Bay when the mortgage repayments will mean you’re struggling to eat for the foreseeable future. Make sure you speak to a trusted adviser or use a mortgage calculator to determine what your upper and lower limits are. Whilst doing this, make sure you factor in any interest rate rises.
Another avenue, if your home loan allows, is to consider altering your repayment schedule. For example, switching to fortnightly repayments may allow you to become mortgage free earlier than you anticipated.
Or, if the official interest rate drops, instead of dropping your repayment, in the hope of freeing up more cash, a wise choice is to keep your repayments at their current level. Both will help you to become home loan free a lot faster.
It’s wise to ensure you have an emergency fund in place that will allow you to maintain a similar standard of living, should tough times hit. A good idea is to have a safety net of roughly six months that will allow you to live comfortably if you run into financial hardship.
Lastly, try to live within your means. This could mean putting off buying that new sports car or renovation plans for a couple years. Make sure you are able to maintain your current lifestyle, whilst building your saving and shielding yourself from an unexpected interest hike.
Managing your mortgage
If mortgage stress is already affecting you and your family, don’t feel like you have to go at it alone. The first thing you need to do is see your lender or meet with one of our experienced mortgage advisors.
This will provide you with a clear picture of your situation and the steps you can take in order to recover. Whether this is through, creating a new repayment plan, finding you a better rate or even putting your repayments on hold for a month or two.
Once you have a clear plan of attack and understand exactly what you need to do, your next step will be to build a budget. Having a strict budget in place, that outlines what you can afford and what you can’t, will show you the path back to financial health.
Chances are your home loan will be the biggest financial commitment you’ll have and managing it won’t be an easy process. To ensure you don’t stress yourself out due to mismanagement, make sure you don’t put yourself in a position where your repayments may become an issue.
If you are finding it hard to manage your repayment or would like help avoiding these issues, don’t hesitate to contact us today! Our experienced and friendly team of advisers will be able to help you manage your repayments and find you the best options for your situation.
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