How to lessen the shock of changing interest rates
Many homeowners are grappling with the burden of high interest rates on their mortgages and while it may seem daunting, there are proactive steps you can take to manage this financial challenge effectively.
Strategies for managing high interest rates on your mortgage:
Moving to interest only for a period can reduce the cost and help manage the family budget. Some banks have reduced the hurdles to approve this and will help make this transition easy. This will add further time to the length and total cost of the loan.
Refinancing your mortgage can be a powerful tool for combating high interest rates. By refinancing at a lower rate, you can reduce your monthly payments and potentially save thousands over the life of the loan. The new bank will offer a cash incentive to switch. You must weigh the costs associated with refinancing, such as legal costs and fees, and cash contribution repayment against the potential savings to ensure it's a financially prudent decision.
Accelerating your mortgage payments by making additional contributions toward the principal can help offset the impact of high interest rates. Even modest extra payments can shave years off your mortgage term and save you a substantial amount. Consider allocating windfalls, such as bonuses or tax refunds, toward paying down your mortgage principal to expedite debt repayment and mitigate the effects of high interest rates.
Review your budget to identify areas where you can cut expenses and redirect funds toward mortgage payments. Prioritize debt repayment and consider consolidating high-interest debts to lower overall interest costs. Work with a financial advisor on a tailored financial plan encompassing savings goals, investment strategies, and retirement planning.
If your loan is coming up for renewal this year, make a note to get in touch with us about 3-4-months in advance of your term coming to an end. We will undertake a free financial review and provide you with advice about options.
To book your free financial review, email stephen@ mymoney.net.nz with the subject ‘free financial review
