Tips for Dealing with Rising Mortgage Rates
Rising interest rates are bad news for first home buyers and borrowers alike, with new homeowners and investors (those who bought homes in the last 18 months) facing much higher mortgage repayments for the first time. With the Reserve Bank of New Zealand signalling further interest rate hikes are on the horizon, how can we avoid placing strain on already tight budgets and stay on top of bigger mortgage repayments?
Here are some options:
1. Check what mortgage you are currently on
The first step is to determine how your current mortgage is structured, as interest rate increases will affect the floating portion of your home loan, as well as any fixed interest rate terms that are ending that are going to be refixed.
If you’re not sure how your home loan is structured, contact your lender or mortgage adviser to help you work through the details. It’s worth booking in a home loan restructure checkin with a Mortgage Express branded adviser, to ensure you’re getting the best deal available to you, and that your home loan is structured to fit your requirements.
2. Determine how interest rate increases impact you
Now that you know how your home loan is structured, your mortgage adviser can help you determine the impact any interest rate rises will have on your home loan repayments. You can also use a home loan repayment calculator – like this one – to work out what your repayments are going to look like.
If your fixed rate term is nearing the end, now is a good time to discuss with your mortgage adviser locking in an interest rate. It’s also worthwhile comparing how your interest rates stack up against any other deals in the market, and this is something else your mortgage adviser can help you with.
3. Devise a plan to help you manage higher repayments
The Reserve Bank (RBNZ) has warned that a noticeable number of households that borrowed for the first time in 2021 will find it difficult to pay their mortgages and cover all their other usual expenses. If you’re in this situation, start building up a savings buffer now to help you manage the higher repayments you are going to face in the year ahead.
Take a close look at your budget to identify the expenses you can cut out or ways in which you can boost your income. Check that you’re getting the best deal for utilities – power, internet and phone – and pay down any high interest debt as soon as you can to help free up extra cash to divert into your home loan.
Get expert advice about your financial situation
With more interest rate hikes predicted, it’s important to have a financial plan in place to help you cope with higher mortgage repayments. As well finding ways to cut back on unnecessary spending, building up a savings buffer could help you prepare for higher costs ahead.
If you’re concerned about the impact higher mortgage repayments could have on your financial situation, it’s best to seek help immediately. Contact your mortgage adviser or lender to discuss your situation before you miss any repayments.
Contact a Mortgage Express branded adviser if you have questions about your existing home loan and the impact higher interest rates could have on your financial situation.
Limiting Interest Deductibility
New interest limitation rules have been introduced which has either phased out or is slowly phasing out the ability to allow interest paid on loans as a deductible expenditure when the loan was for a residential rental property.
For residential property acquired on or after 27 March 2021, interest is denied as an expense from 1 October 2021, unless an exclusion or exemption applies.
For property acquired before 27 March 2021, the ability to deduct interest on existing loans is being phased out over 4 years, ending 31 March 2025.
Interest on new loans drawn down on or after 27 March 2021 will not be deductible.
Exemptions and exclusions
The proposed new interest limitation rules will apply to properties that are suitable to be used for long-term residential accommodation.
Some types of residential accommodation will be excluded from the rules. These are generally properties unsuitable for use as long-term accommodation or for first home buyers.
New build exemption
The exemption will apply to the initial owners and any subsequent owners for 20 years from the date of the CCC. A new build is a self-contained residence that is added to land, with a CCC issued on or after 27 March 2020.
Phasing out interest deductions
|Income year||Interest you can claim|
|1 April 2020 – 31 March 2021||100%|
|1 April 2021 – 30 September 2021||100%|
|1 October 2021 – 31 March 2022||75%|
|1 April 2022 – 31 March 2023||75%|
|1 April 2023 – 31 March 2024||50%|
|1 April 2024 – 31 March 2025||25%|
|1 April 2025 onwards||0%|
Damage Because of Weather Events
Wild weather can cause damage at your rental property. Find out what to do if your rental needs repairs after extreme weather or a natural disaster.
Landlords are responsible for maintaining the property in a reasonable condition. This includes fixing any damage caused by severe weather or a natural disaster.
If the rental is damaged by flooding, the landlord is responsible for drying the property if it has water damage and paying for costs to repair the damage. This might also include paying the tenants for electricity charges to run a fan, dehumidifier, or heater to dry the property.
For Landlords (and property managers):
- Contact the tenants to check everyone is safe and discuss any damage.
- Discuss with the tenant what safe and practical measures could be done to prevent any further damage, or to secure the property until the repairs can be done.
- Ask a professional when they can make the repairs and if it’s safe for the tenants to stay in the property while it’s being fixed. Let the tenants know how long the repairs are expected to take, and make sure you give the correct notice to enter the property.
- Have a good knowledge of your insurance policy and what it covers. Talk to your insurance company about making claims.
Tenants should speak to their landlord as soon as they can to let them know about any damage or need for repairs. If they don’t tell their landlord about damage within a reasonable time, they may be liable.
- If it’s safe and practical to do, there may be things they can do to help prevent further damage. For example, covering a broken window to keep rain out of the house until repairs can be done.
- If a tenant has tried talking to their landlord about the damage and they don’t do the necessary repairs, they can send their landlord a notice to remedy. This notice tells the landlord what they believe they have done to breach their obligations under the Residential Tenancies Act 1986, what the tenant would like them to do to fix it, and a reasonable timeframe for them to do it (normally a minimum of 14 days).