Mortgage interest hikes are going to hit homeowners in the pocket. Photo / Getty Images
Homeowners could be in for a ''heck of a shock'' as rising interest rates add tens of thousands of dollars onto the term of mortgages.
A $700,000 loan that had gone from 2.49 per cent to 3.65 per cent over 25 years would incur interest of $367,515 compared to $240,497 - on the lower rate - a jump of $127,018.
Loan payments would climb from $723 a week to $821 on a one-year fixed-term over the same time frames.
Those figures were calculated on the Sorted website, and Retirement Commission personal finance lead Tom Hartmann acknowledged rates would continue to fluctuate and said amounts had ''increased dramatically''.
Reserve Bank assistant governor Christian Hawkesby told a financial conference meeting on Tuesday it would take "considered steps" in its monetary policy - meaning gradual increases in the official cash rate.
The bank hiked the official cash rate by 0.25 per cent to 0.75 per cent last month. In October the official cash rate was lifted from a record low 0.25 per cent.
In recent months more people had fixed their mortgages over longer terms.
Hartmann said interest rates had ''really ramped up''. ''You are going to be paying an awful lot more.''
Banks stress-tested, Hartmann said, and usually added a few percentage points.
''Now they are asking about all the things you spend money on what could you go without? There are must-haves versus nice-to-haves if interest rates go higher.''
Hartmann said preparation was the key and knowing there was flexibility in your budget was important.
''What really makes it hurt, is being taken by surprise. We want people to be resilient no matter what happens.''
Harry van der Merwe, from Hello Mortgage and Insurance Advisers in Rotorua, said the Reserve Bank was trying to slow down property values and banks had increased rates fast.
The company was already accessing mortgages at 5 per cent to ensure clients would be all right.
''It should still be affordable but it has made it a lot harder.''
Chris Rapson, owner of Rapson Loans and Finance, said some people were concerned about the rising rates but he agreed the banks had factored in those considerations.
''The worry will be if we start to see a lot of mortgagee sales. That is pretty rare because people pay their mortgage first.''
But another 2 per cent increase would add $10,000 a year to a $500,000 mortgage, he said.
''That is a lot of money and to earn $10,000 you've got to make $15,000 because you are paying a third of it away in tax.''
Ownit Rotorua manager and registered financial adviser Hayley Hubbard said if ''you want to buy a house you buy a house and first-home buyers don't tend to worry about interest rates''.
However, staff were fielding increasing inquiries from people who wanted to re-fix and were concerned.
''They are trying to get their heads around it. Customers that would normally fix for a shorter term are looking at the three, four or five-year rates, which are a lot higher and that is freaking them out.''
She said it was ''funny'' banks had jumped on the bandwagon and upped rates quickly.
''There was big pauses when the official cash date dropped ... now we have two or three interest increases in the last few weeks.''
Rotorua Budget Advisory Service manager Pakanui Tuhura said homeowners had enjoyed extremely low interest rates and they are still well below what they were five years ago.
A secondary large expense was the rising cost of insurance and many people found their house insurance did not cover the true cost to replace and had to increase coverage and premiums.
Craigs Investment Partners head of private wealth research Mark Lister said in a column for NZME that interest rate rises were ''going to hurt''.
The precise magnitude of any increase would depend on when home-owners locked in a rate and for how long.
''Money is going to get a lot more expensive. Some two-thirds of fixed-rate mortgages are due to reprice within a year, so there's a fairly big group of people who could be in for one heck of a shock.''
An ANZ spokeswoman said its current one-year fixed rate special was 3.65 per cent compared to 2.49 per cent in December.
The bank had a dedicated Customer Financial Wellbeing team to support those facing financial difficulties.
''Every customer situation is unique so if a customer is facing financial difficulties we always recommend they get in contact with us as soon as possible.''
A BNZ spokesperson said its fixed one-year rate was also 3.65 per cent and in line with Reserve Bank loan-to-value ratio regulations, it required a 20 per cent deposit for an existing loan and at least a 10 per cent deposit for new builds.
Kiwibank lending product manager Pip Maxwell said home loans were assessed for affordability and its one-year fixed rate was 3.69 per cent with a 20 per cent deposit.
She said Kiwibank encouraged customers to have as large a deposit as possible.
''We want to ensure that our customers' loan structure remains suitable and affordable, so periodic assessment is designed to support financial wellbeing. If a customer experiences financial hardship we will work through support options with them and identify the best option to suit their circumstances at that time.''
A Westpac spokesperson said it has helped first-home buyers purchase 6598 homes in the past year.
Westpac's one-year special rate was 3.69, compared to 2.49 per cent one year ago and was mainly driven by a rise in wholesale rates.
''We encourage people to talk to their bank if they're worried about their finances, but hardship requests are currently low. Support options for borrowers may include reduced mortgage repayments for a set period, or an extension of their mortgage term.''
Outgoing Reserve Bank of New Zealand deputy governor Geoff Bascand said earlier this week its latest stress tests shows strengthening resilience in the banking sector compared to a year ago due to higher capital levels.
The stress test was designed to test the extent of banks' ability to meet customer withdrawals under very severe assumptions.
''It is well placed to support the economy if conditions were to worsen.
"Our job - and capability - is to limit financial stability risks and keep overall inflation under control."
Reg Hennessy has owned pubs, taverns and liquor stores over a nearly 50-year career.