The last review of the OCR by the Reserve Bank saw the regulator drop the rate by 0.5 points. Subsequently, lenders revised rates downwards to reflect the RB move. One can say that “Kiwis are laughing all the way to the bank”. Borrowers are enjoying better loan terms and bigger loans. This is reflected in the borrowing trends, especially of home loans. The average loan values have been rising and riskier (low deposit) mortgages more common. On the other hand, credit card debt has ballooned.
With a higher debt to income ratio, New Zealand homeowners are at a higher risk of mortgage stress than ever before.
If you are already stretched to the limit with mortgage payments, mortgage stress could be looming. But are you prepared for it?
Read on and learn how you can handle it.
Build a savings reserve
Building a savings reserve may sound ironic right now but that’s exactly what you ought to do.
It’s time you took advice from one of the most successful investors in history – Warren Buffet. Spend what you have after saving.
You may have to be more realistic and check your spending.
Are you spending on what you need? Or are you trying to keep up with the Kardashians?
Reach out to a financial advisor or debt counselor and work out ways to cut your expenditure so that you can save. The more you have in your savings, the higher your chances of surviving a rate hike without being scathed.
Change the Mortgage Structure
If you are already experiencing mortgage stress, and your budget is stretched to the limit, you may need to review the mortgage structure.
Perhaps you had the ambition to finish paying off your mortgage in less than 15 years. So you took up a shorter-term mortgage. Or maybe your income has dipped, perhaps due to the loss of a partner through death or divorce, or due to a job shift.
Whatever the case, a review of the mortgage structure and terms can go a long way in relieving mortgage stress.
You can talk to the lender and discuss your options before you miss any payments.
In your discussions, consider stretching the loan term and reducing the installment payments. You’ll pay more interest in the long run, however, your credit integrity will be intact. This is what will help you live to fight another day.
Reach out to a bad credit mortgage broker
For many people, mortgage stress is often accompanied by denial.
When you fail to appreciate that you are unable to make mortgage payments and bury your head, you become vulnerable to a mortgagee sale.
If you’ve missed a few mortgage payments, it’s undeniable that you are experiencing mortgage stress. Unfortunately, the lender bank may not be as considerate as you expect and they may serve you with a PLA Notice. If that’s your case, reach out to a bad credit mortgage broker and explore your options of refinancing with alternative lenders.
It may seem like a more expensive option at first. But, it gives you room to breathe.
You can sell the home and downgrade to a more affordable home, or you can get much-needed time to get back on your financial feet.
Don’t let mortgage stress push you to a mortgagee sale. Reach out to a lawyer or a trusted mortgage broker and have them help you through these options.