Are you ready for mortgage rate rise?

First National Real Estate chief executive, Bob Brereton, says homeowners need to start preparing themselves for mortgage interest rate rises and is warning that
those who fail to plan ahead may face hardship over the next 18 months.

Recently, financial watchdog Canstar, which monitors interest rates closely, warned that home loan rates will continue to rise this year and noted that a number of banks have already started increasing their rates.

This followed a similar warning from finance minister Steven Joyce and comes despite a decision, by the Reserve Bank, to leave the OCR at 1.75 percent for the remainder of 2017.

Mr Brereton says that interest rates have been at historically low levels for several years and that this has enabled people to continue buying
houses even as house prices have been rising. “Lower interest rates have partly offset increasing house prices and people have been able to afford to borrow more
because repayments have been lower than in previous years.”

However, Mr Brereton says that situation could change quickly as rates start increasing and people may find themselves in difficulty.

“A 1 per cent rate increase on a $500,000 mortgage would increase your repayments by around $100 per week. For some people that could be a tipping point.”

Mr Brereton is encouraging people to prepare for this change early rather than waiting for it to happen to them.

He recommends using one of the many free calculators available, such as the one provided by First National on their website to work out what your repayments would be if rates moved up by 1 per cent, 1.5 per cent or 2 per cent – then using this information to work out whether you could continue to afford your mortgage.

“Forewarned is forearmed. If people do this simple exercise early, they’ll be ready for any changes over the next 12 to 18 months”.

Mr Brereton says that people who find that an increase in their payments would stretch them will have options if they plan early enough.

“There are a range of options including reviewing your budget, getting in a boarder, taking on additional work or talking to your bank about a repayment holiday or moving to an interest-only mortgage.”

Mr Brereton says that in some cases, people will want to consider selling their home and buying something more affordable.

“Obviously, selling under financial pressure isn’t ideal – so the earlier people plan for this option the better”.