How to manage rising interest rates and mortgage costs

If you’re coming off a low fixed mortgage rate or about to face higher repayments, we understand it can be a daunting time.

We have put together some simple strategies to help you handle rising interest rates and help your financial wellbeing.

Know your financial situation

Let’s start with the basics. First, figure out your net income from all sources (salary, Working for Families, benefits, rental income, investments). Next you need to categorise all your expenses. They can be put into either:

  • Fixed expenses (payments like mortgage, insurance etc), or
  • Variable expenses (costs that change like groceries, power, entertainment).

It can be handy to use a budgeting tool, like the Budget Planner from Sorted. This will help you see where you can cut back and save money for your mortgage payments.

Take a close look at your assets vs debts

After budgeting, it’s time to look at your assets and debts. Start by listing your assets which include cars, boat, caravan, savings, investments, property etc. Then do the same with your debts. Debts are categorised as either:

  • secured dept (mortgages, car loans etc.), or
  • unsecured debt (like credit cards, hire purchases etc).

Things in your unsecured debt list will most likely be high interest. Ask yourself, is there anything that you may be able to sell or downgrade to pay off the high-interest debts? Hopefully you can free up some money to help cover the higher mortgage payments.

Managing your money

Having short, mid and long-term goals are a great way to help you manage your money. It needs to be sustainable for you. You want to be able to work on your savings, but also ensuring you have enough money to pay for your needs and some wants.

You can make up your own budget rule by following these steps:

  1. Now you have done your budget, you can work out your “needs” amount. What percentage of your monthly income is this is?
  2. Round it up to the nearest zero, so if your expenses add up to 53% you should set aside 60%. This is easier to work out, but it also gives you a buffer for any bigger than normal grocery shops, or higher than normal bills.
  3. Whatever’s left of your pay, you divide that between “wants” and “savings” according to your priorities. If you’d like to reach your savings goals sooner, you might want to cut down on your “wants” to boost your savings.

Is refinancing or a loan restructure an option?

If high interest rates are overwhelming, refinancing or restructuring your loan might help. We recommend talking to a Mortgage Adviser if this is what you are thinking of doing. For a refinance they can help you shop around all the lenders and find a solution that suit you and your situation. They can also negotiate with the lenders on your behalf to make sure you are getting the best rate.

Another option could be restructuring your loan. Again, talking to a Mortgage Adviser can help you determine how you should do this for your unique situation. Some ways to restructure are:

  • splitting your mortgage over different fixed rates, 
  • extending your mortgage term, or 
  • switching to interest only. 

All of these options have knock on effects, so it is important that you get the right advice for your situation.

Keep it simple

Getting back to basics can be really beneficial. By integrating these strategies into your financial plan it will help you tackle any challenges and keep your financial wellbeing in check. Don’t forget, we can help. Feel free to reach out if you need support!

Photo by Mikhail Nilov

Disclaimer: The information in this article is not financial advice. Consult a professional for advice tailored to your situation. Our Disclosure Statement is available here.

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