How to prepare for increasing interest rates

Interest rates are on the rise and the cost of living continues to increase. We want to help you understand what that means for your home loan. This is thinking ahead.

Five tips to navigate rising rates

We spoke to Pip Maxwell, Kiwibank's Senior Product Manager in Home Lending, to give you her five top tips for managing rising interest rates.

  1. 1

    Plan ahead with your household

    Get around the table and have an open conversation within your household to ensure you’re all on the same page. Managing the household budget collectively may help identify opportunities to be as cost effective as possible. For example, are there multiple subscriptions to services where you could simplify to one? Could you set up a separate account for discretionary spending? Or, agree on what are the 'Must Haves' versus the 'Nice-To-Haves'.

  2. 2

    Review your expenses

    While some of your home-related expenses such as rates are set in stone, others can be challenged. So, review your insurance or utility bills and obtain quotes from other providers. We have tools, tips and guides to help you review and create your budget, as well as calculate your bills.

    If you’ve made a budget and you see a big shortfall between money coming in and money going out, then don’t be scared to ask for help. Give us a call, or, if you want budgeting advice, visit MoneyTalks, which offers free budgeting advice and is run by the national charity FinCap and is supported by the Ministry of Social Development.

  3. 3

    Get your home loan structure right - can you hedge your position?

    Depending on what works best for you, you could split your home loan into portions, which may be on a variable rate or fixed on different terms. This gives you a blended rate over time rather than rolling your entire loan over at any one time in the market when it's time to refix your mortgage. There’s no crystal ball to provide certainty of what the rates may be in the future, so you need to be comfortable that some of your loan portions may roll over at a higher rate. You can look at home loan structure options using our Repayments and Structuring Home Loan Calculator or talk with one of our home loan specialists to discuss your overall financial position. Although you can restructure your mortgage at any point in time, there may be costs involved in breaking a fixed rate before its loan term period ends.

  4. 4

    Debt consolidation

    Consolidate debts where you can and set up a savings plan for contingencies to help break any short term debt cycles. Again, our team are here to help and we have resources to help you get on top of debt.

  5. 5

    Maintain good habits

    While we don’t know how long rates will be increasing for and how high rates will go, maintaining good habits you introduce during the economic cycle can help prepare you for potential rate increases in the future. For example, higher interest rates will mean higher minimum repayments. When rates start to go back down, if you keep your payments the same you'll be paying more principal off your loan faster, while maintaining a buffer should your minimum repayments increase again in the future.

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