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Riding the wave: Keeping your cool as mortgage rates rise

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About ten years ago, I decided I’d like to be a half-decent surfer. So like all aspiring, fresh-faced wave riders, I bought a board and headed out to Raglan to get my fix and learn my new sport.

But watching surf competitions and being out there in the waves is quite a different thing – and quite frankly, I wasn’t very good.

A little like when purchasing your first home and you’re learning about the market, deposits and interest rates, I started to understand wave patterns, learned to pick the right ones for my skill level, and built strength in my arms for paddling.

There’s nothing quite like picking up a pearler of a wave. The sun is shining, your paddling game is strong, and you’re making subtle turns in all the right places. I think we’ve enjoyed conditions like these in the housing market over the past few years. Interest rates are low, the market is strong, optimism is high, and things seem to come together seamlessly.

But what happens when these things change? 

Interest rates have now been on the rise for over a year, and they’ve increased the fastest they ever have. So it stands to reason that after the most recent rise, people are feeling a little like they’re on a wave about to dump them on the ocean floor.

But, it’s not all doom and gloom – we’ve been here before, several times – and now is a perfect opportunity for homeowners to relook at their financial situation.

With rising home loan rates, reviewing your budget, assessing your income and expenses, and re-evaluating your long-term financial goals are essential. This helps identify the right financing options that suit your needs and circumstances.

It’s also important to seek guidance from experts in the field. Collaborating with mortgage advisers, financial advisors, accountants, or real estate agents can offer valuable perspectives on the market and help you determine the best course of action.

Exploring different refinancing options can also be a powerful way to secure a lower interest rate, reduce your monthly repayments, and ultimately save you money over the long term, and we’re working with a lot of our clients considering these options. However, it’s important to weigh the costs and benefits of refinancing before making any decisions, and your adviser will help ensure you’re moving forward with your goals.

There are also other levers to pull in this space such as interest only, or loan term extension which can help reduce the burden of higher rates and free up more money each week to meet the slightly higher costs of living.

Prioritising debt reduction is another critical aspect of successful home ownership. By paying off high-interest debt such as personal loans or credit cards, you can free up more funds for your home loan repayments and ultimately reduce your overall debt burden.

Maintaining an emergency fund and setting a budget to manage your money so there are no surprises, is also a really good idea. A savings buffer can help you weather any unexpected financial challenges, such as job loss or medical expenses. Budgeting can reduce stress of the unknown and helps you put your best foot forward with confidence.

So while the seas might be a bit stormy right now, there is sunshine on the horizon. We’re expecting interest rates to start levelling off towards the end of 2023, and from there, we should see some decreases in early 2024.

In the meantime, staying calm, controlling what’s within your sphere and leaning on experts around you will help you get through the bumpier times.

And I’ll keep working on my surfing technique, ready for the next perfect wave.

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About Author

Claire Williamson

My Mortgage director and mortgage adviser.