Shelley Hanna answers your KiwiSaver questions

Borrowers looking to refix their loans now will need to consider how much higher rates may go. Photo / Getty Images

Q Can we make a second withdrawal of our KiwiSaver balance (leaving $1000 in the account) to pay off some of our current mortgage? Our mortgage repayments have increased and we are struggling. We made a KiwiSaver withdrawal six years ago when we were buying our current first home.

A Unfortunately, no one can make a second First Home withdrawal from their KiwiSaver.

This is an opportunity only for people who have never owned property, or who have owned property in the past but no longer do so. The latter group must meet various criteria, including never having made a KiwiSaver First Home withdrawal in the past.

A double whammy of rising interest rates and inflation are putting many households into financial difficulty.

Since July 2020 a two-year fixed rate mortgage has climbed from around 2.65 per cent to 5.65 per cent per annum (some are over 6 per cent per annum).

According to the mortgage calculator on the Sorted website, a borrower refixing a $400,000 mortgage (over 20 years) at 5.65 per cent will be paying an extra $7592 per year — an increase of $146 per week. This is going to stretch anyone's budget.

It will also feel like "dead" money as you won't see any personal benefit in the increased payments. If it is any comfort, those who will benefit are people with money on term deposit, who will now be getting 4 per cent or more on their money, compared with 1 per cent or less.

Many of these are retired folk with a small nest egg, who will have a bit extra to live on (even if the "bit extra" will be eaten up with the rising cost of fuel and groceries).

How much higher rates will go is anyone's guess. While the Reserve Bank is expected to continue raising the OCR, international wholesale markets also affect rates. ANZ lowered their two-year rate by 0.35 per cent early in July. According to an ANZ spokesperson:

"While wholesale rates remain volatile and the Official Cash Rate is expected to continue to rise, where there is an opportunity, we will pass savings on to customers. Interest rates will continue to be reviewed in response to international and local market conditions."

Borrowers looking to refix their loans now will need to consider how much higher rates may go, and whether it is worth going for a longer term and certainty, or a shorter term in the hope that rates will ease off. There is also increased competition between banks due to the slowing housing market, which may benefit consumers. You can ease the pain by extending the term of your mortgage, if your bank will agree to this.

If you are finding it hard to meet your mortgage payments, there is the option of a Significant Financial Hardship (SFH) application. This is for KiwiSaver members who are struggling to meet minimum living expenses, including rent or mortgage payments. They may also be struggling due to medical expenses or an unexpected change in circumstances.

Anyone wishing to make an SFH application needs to provide supporting evidence and show that they have tried other options first, such as Winz or their bank. Any payment is up to the discretion of the trustees of the KiwiSaver scheme, and may not be for the full amount requested.

If you decide to go down this road, you can seek free help from a budget adviser or financial mentor. They have plenty of experience in this area.

• •Shelley Hanna is the communications manager with Peak Portfolio Management Ltd which is a Financial Advice Provider licensed by the Financial Markets Authority. Disclosure information is available at www.peak.net.nz or call 06 8703838. The information provided in this article is of a general nature and should not be relied on as a recommendation to invest in a financial product. Send your KiwiSaver questions to shelley.hanna@peak.net.nz