Spreading risk
Despite current interest rates being a shock to those homeowners rolling off the record lows of 2020, Kiwibank Chief Economist Jarrod Kerr forecasts that interest rates have peaked. “Rates are likely to decline into 2024, which is a silver lining for those with home loans. Hang in there, because based on a view that the Reserve Bank will cut the cash rate in May 2024, mortgage rates will be a full percentage point lower in June 2024 than they are as of July 2023,” he said.
Kerr says a lot of people don’t know that they can split their home loan into portions to spread the risk of an entire home loan rolling over to a different rate. Splitting a home loan into two or more portions divides the total amount you’re borrowing into smaller parts, often on different terms and interest rates.
I would advise anyone to speak to their mortgage manager and look at the option of splitting the home loan into portions on different terms. For example, part of the home loan could roll over in one year, another part in two years or four years and so on.Jarrod Kerr, Kiwibank Chief Economist
He also recommends paying off more of the home loan when interest rates are low, so that allows a buffer when rates increase. “Paying off principal harder, faster, when rates are low, helps during times of fluctuation,” Kerr said.
The second silver lining coming off the back of the higher living costs is that incomes will continue to rise, Kerr says. “We are seeing some signs of softer price pressure going forward and incomes will run above that, so that will be a much better situation for households in 2024,” Kerr said.
The majority of our home loan customers have been resilient during mortgage rate rises so far, Kiwibank’s Senior Product Manager in Home Lending Richie McLay says.
Paying a home loan is a priority, so that’s the first thing people pay. Making repayments is generally not one of the expenses people cut. Other expenses can be changed though, so review your insurance or utility bills and obtain quotes from other providers. Below are some resources with practical ideas to help you to manage your money:
- see our guide on how to create a budget
- fine tune your home loan by trying out how splitting your loan into different portions could impact your repayment amounts
- read our tips to help you get on top of debt
The ideas shared here might not all apply to your situation, so get in touch with a home loan specialist if you'd like to discuss which options might work for you.
Maximise interest on savings
Whether you've set aside funds for an emergency, or are working towards a savings goal there are ways to maximise the interest you earn. Choosing to keep available funds in a higher interest-bearing account vs having it sit in a transactional account that doesn’t earn any interest can make a significant difference over time. Across New Zealand, Kiwi had a combined $46 billion in transactional accounts that were not earning any interest for them as at December 2022.
However, a savings account such as our Online Call lets you earn good returns while having immediate access to your money. That means any amount of money sitting in the Online Call account can be earning interest, while still being accessed at any time. Interest is calculated daily and paid monthly and there’s no minimum balance required to open the account.
A Notice Saver is another option which earns an attractive rate of return. Notice of either 32 or 90 days needs to be given to access the funds, this means the rate of return is higher than the Online Call.
Our Financial Wellbeing Coach Helen Rietveld recommends making sure you have the right accounts set up to match your financial goals. “Even if you’re able to save $5 per week, you’ll be surprised how quickly your savings will grow. If left untouched that $5 will grow into $260 per year, plus interest in an interest-bearing account,” she says.
Compare rates for different investment types and discover how hard your savings can work for you. To open a savings or investment account, you can apply online.
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Standard terms and conditions
Interest rates are subject to change. The rate of return for Notice Saver can change at any time and without notice. This means the rate might go up or down during your investment.
Units in Kiwibank Notice Saver are issued by Kiwibank Investment Management Limited and are distributed by Kiwibank Limited. See all investments terms and conditions or pick up copies from your nearest Kiwibank.
This communication contains general information only and not investment or tax advice, and as such you shouldn't rely on it as the sole basis for any financial decision. Potential investors should seek professional advice as to whether an investment is right for them, including the taxation implications of such an investment.
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