Consumer watch: Six ways to stay afloat

Banks are often willing to help you find a solution to a temporary cashflow crisis. Photo / Getty Images

If your finances are suddenly thrown into disarray — by the loss of a job, a new baby, or an accident — there are ways to make sure a few tight months don’t force you out of your home. Susan Edmunds reports.

Get in touch with your lender

Banks will be more willing to help if they are warned trouble may be ahead, rather than getting a panicked phone call when the first repayment is missed.

Mortgage broker David Windler says it's better to err on the side of caution and put some strategies in place that might not be needed, rather than run the risk of not being prepared.

"The worst place for your head is in the sand."

Once borrowers get into unarranged overdrafts, or have payments declined, they look a riskier proposition for the bank.

Bruce McLachlan of the Co-operative Bank says banks are also more inclined to help if you maintain a good credit history. "Lenders are very accommodating because you've proven intent to meet your obligations. It's a valuable asset."

Adjust your mortgage term

McLachlan says people facing long-term money trouble can talk to the bank about restructuring their debt.

A $500,000 loan being paid over 20 years costs $1677 a fortnight on a 6 per cent loan. Push it out to 30 years and the fortnightly payment is more than $200 less, at $1411.

It's best not to consider this a permanent move, though. Increase your payments to reduce the term again when you can because the 30-year term costs just over $600,000 in interest, compared to $372,310 for a 20-year term.

Take a repayment holiday

Most banks will consider a mortgage repayment holiday for people with a good payment history.

The biggest problem is that the interest you are not paying is added to the principal, creating a bigger loan to come back to.

Windler says borrowers in that situation need to go into a repayment holiday or interest-only period conscious of the fact their financial situation is going to stand still for a while.

"When it's possible to resume normal business, you should."

Switch to interest only

Consider changing your mortgage repayments from principal and interest to interest-only. You don't pay off any of the amount you owe the bank, just the interest that is being charged - a much more palatable option for borrowers and lenders when house prices are increasing than when they are stagnant or falling.

McLachlan does not recommend it long-term but it can help to take the pressure off for a while.

Find a cheaper interest rate

Are you getting the best interest rates possible? If your mortgage is floating, you may be able to reduce payments by fixing at least part of your loan.

Refinancing a $500,000 loan on a 30-year term from BNZ's floating rate of 6.74 per cent to a two-year fixed rate of 6.19 per cent will cut your interest payments by $83 a fortnight.

Short-term fixes seem a safer option now than a few months back, as the official cash rate is not increasing at the speed some economists predicted.

Get a new valuation

Banks are more willing to offer good interest rates and sweeteners to people with more than 20 per cent equity in their property.

Windler says banks may be using the original purchase price as the security value, which could be out of date.

Some banks also accept a $49 QV evaluer report to update value. In Auckland, new Council Valuations provide leverage.

"It's worthwhile doing because the pricing you get at 80 per cent (loan-to-value ratio) is so much better. It's worth a punt particularly if you have added value," Windler says.