According to the Reserve Bank, the average mortgage rate being paid on outstanding mortgage debt is now at its highest level since October 1998. Almost 90 percent of all mortgages are on fixed rates with nearly a third of these due to be renegotiated over the next 12 months: for each $100,000 they owe, these borrowers could face increases of between $700 and $1500 a year ($58 to $125 a month).
Plan ahead as soon as possible if you think your payments are going to go up:
- Maybe you can afford the increase - with or without changes to your lifestyle.
- Do you need to cut back on some items in your budget to make up for the higher mortgage payments? Work out what bills should be top priority for payment - such as rates, power, telephone, other debt. Then look to see where you can make savings. (Always make sure you pay your rates. Local authorities can approach your mortgage lender for payment if their borrowers are behind with their rates. They also have the ability to give extra time or concessions on rates payments in times of hardship.)
- With a fixed-interest-rate loan there'll usually be plenty of advance warning about increases in your interest payments. And if you've significantly reduced the amount of the loan - your principal - since the interest rate was last fixed, your interest payments will be lower than they'd otherwise be.
- See your lender as soon as possible if you think there's any danger that you'll miss a payment. It'll be much easier to reach a reasonable agreement with your lender if you co-operate early. Don't wait until legal action is threatened.
What's driving higher rates?
Defaults on high-risk (sub-prime) loans in the US have caused international lenders to become cautious and this has raised the costs of overseas borrowing for New Zealand banks. As well, the Reserve bank's official cash rate - which sets the benchmark for local interest rates - is high. And there are also fewer lenders than there were, because the credit crunch has cut off sources of finance for non-bank lenders.
All these events are keeping interest rates up and reducing the amount of money available for borrowing.
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