Money tips to help you get ahead in 2017
Experts are urging people to plan ahead for increasing mortgage rates and their potential flow on effect to rents.
Rates for three, four and five year fixed terms began to rise at the end of last year and more increases are predicted as banks face rising costs from borrowing more money on the international money market.
Mortgage broker Bruce Patten expects longer term fixed rates to move up into the early to late 5 per cent-range next year.
Last year people were able to nab a three year fixed term around the mid to late 4s.
“People have got used to paying 4.5 per cent,” he said.
Those who grabbed record low special rates of 3.99 per cent for 18 months at the start of last year face potentially much higher rates when they come to re-fix their mortgage.
Patten says people who kept their repayments at the same dollar amount, even though interest rates fell, will be able to absorb the increased costs more easily.
But others who took advantage of lower rates to lower their costs may now face some tough questions.
“If you can’t afford it, can you extend the term to make it more affordable?”
Some may have to tighten their belts to afford the higher rates or even consider selling.
“It’s quite hard for a lot of people to adjust their lifestyle,” he said.
“It might be a good time to look at selling.”
Patten believes with rising mortgage rates rent rises are inevitable as landlords look to cover their increased costs.
David Boyle, group manager of investor education at the Commission for Financial Capability, says the best thing is to prepare for rising costs rather than managing them when they happen.
He suggests mortgage-holders go online before their fixed term comes up and use a mortgage calculator to figure out what their increased costs might be.
While pushing out the term from 25 to 30 years might seem like the easiest solution Boyle said that meant people would be paying a “truckload” more interest.
Instead he suggests preparing for the increase by putting aside extra money now.
Most home-owners fix for one to two years.
But mortgage brokers say it could be better to look at fixing for longer to protect against future rises.
What makes people have success is having goals – part of that process is making it manageable.
Lisa Dudson, money coach Lisa Dudson
Boyle suggests people split their mortgage into entrée, main and dessert by having some debt on a revolving mortgage which you can focus on paying down faster and then splitting the rest of the debt and fixing it for different terms to spread the risk.
“Focus on the shorter-term. Protect the medium to long term.”
Raewyn Fox, chief executive of the Federation for Family Budgeting Services says its important people take into account the potential for rising costs when reviewing their money situation.
At the beginning of the year many people face a stressful time with school fees, stationary and new uniform all coming due at the same time.
People are being urged to prepare for higher housing costs in 2017. PHOTO / Supplied.
But she says these are predictable expenses and people should plan ahead by putting money aside during the year.
“Make life stress-free for yourself,” she urges.
As well as planning ahead Fox reminds that plans do change and sometimes they can be for the better.
“You know what’s going to happen if you lose your job but what about positive money news like a pay rise?
“Instead of absorbing it into your budget think about how you could make a difference to your future.”
[Budgeting] is about making sure you are aware of where your money is going.
Lisa Dudson, money coach Lisa Dudson
One area that extra pay could be used for is to boost KiwiSaver savings and with the government’s contribution factored in it can give people the best bang for their buck.
The government puts in 50c for every dollar savers put in up to a maximum of $521. Putting in $1043 a year will mean you get the full whack from the government.
The start of the year can be a good time to check you are on track to get the full subsidy as savers still have until June 30 to make sure they are putting in enough.
Money coach Lisa Dudson recommends a back to basics approach for those looking to make a difference to their finances in 2017.
“The obvious thing is to go back to your budget.”
But she says it’s not all about counting every penny.
“A lot of people get caught into budgeting means don’t spend,” she said. “It’s about making sure you are aware of where your money is going.”
Dudson says people should reassess their goals and make sure those goals are then connected back to their budget.
“What makes people have success is having goals – part of that process is making it manageable.”
Enable Me managing director Hannah McQueen says if people want a different financial situation this year they need to change their behaviour which can be quite hard.
“For most people they need to change their behaviour. But before you can do that you need to diagnose where you are at now.
“For most people that is the daunting thing.”
But she urges people to hop on the financial scales and be honest.