KEY POINTS:
Times are getting tougher for mortgage holders, but the experts are advising homeowners staring at interest rate rises to sit tight, go back to the family budget and not rush into hasty decisions.
Mortgage broker Mike Pero thinks the Reserve Bank's decision on Thursday to raise the official
cash rate to 8 per cent might bring about a slow downturn in the property market. He said people should look closely at their spending, and at whether they could change the way they pay their mortgage.
"Refer to your budget, your household spending and look closely at money going out and money coming in - looking at prioritising your expenses and investments.
"Obviously, interest rates move, you've got no say in that. The next question would be: is your mortgage structured the best way possible?
"If you're tight on a monthly or weekly outgoing, then maybe restructuring your payments may be possible. Talk to a broker, and look at more innovative ways. It may be that they've got good equity in their home and higher repayments, maybe they can restructure payments in such a way that frees them up a bit."
Pero said talking to a banker or broker about it was the best way to start solving it. Asked if it would be better to move to more expensive floating rates rather than committing to a fixed term at an interest rate cycle peak, Pero said, "That's the million-dollar question".
"I'm personally prepared to sit on floating, because I think the market will slow down ... and there will be a few corrections and adjustments."
Lisa Dudson, a financial adviser at Acumen, said it was important not to panic.
"Interest rates have put a lot of stress into people's lives. It's about not panicking, taking a deep breath and going back to basics - can we find the money elsewhere?
"Go back to your budget - that's where it all starts. If you're struggling with interest rates that mean your mortgage goes up 50 bucks a month, then it means you've got to work out how do I trim $50 a month off my spending?"
Dudson said cutting down on takeaway meals could make a big difference, with people not realising how much money was really being spent on small items each week. Dudson said The Money Man television show last year had featured people on lower incomes who said they had no spare money. All were found to have been spending between $400 and $600 a month on things they hadn't realised.
John Melton, training and compliance manager at the NZ Mortgage Brokers Association, advised against making a hasty decision to switch from a floating to fixed-term home loan. The Reserve Bank's official cash rate increase immediately hit those on floating rates, but switching to a fixed rate, despite the quick savings, might not be best long-term.
He said people who do so sometimes find themselves paying penalties when they later move house or need extra money. "The issue is whether once you're into a fixed rate there's a cost to break out of it. It needs to be thought out under professional advice."
