Facing The Financial Squeeze: What Are My Options?

Woman holding head in hands and feeling stressed about financial problems

26 Oct Facing The Financial Squeeze: What Are My Options?

Posted at 10:32h in Bad Credit Home Loans, Mortgages and Home Loans by Rachael Alexander

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Households across New Zealand face the worst squeeze on disposable income, as rising inflation, higher fuel costs, and increased interest rates challenge affordability. For households with reduced income facing the financial squeeze, now is a good time to review your mortgage with a view to helping relieve the financial stress you are experiencing. Here are some options that may help you free up some funds in your budget and reduce your financial stress.

1. Top up your home loan

If you have built up equity in your existing property, you may be able to apply for a home loan top up that will free up some cash to help ease the financial squeeze. Homeowners typically apply for home loan top ups to finance renovations or improvements in the home. A home loan top up is helpful if you have high interest debt. As home loans normally have lower interest rates than other forms of debt such as credit cards, by consolidating your debt into your mortgage, you’ll usually save on interest rate charges. If you haven’t had the opportunity to build up equity in your property yet, consolidating your debts into one easy to manage loan – a debt consolidation loan – can be an alternative option. A debt consolidation loan is a completely separate personal loan, and usually comes with lower interest rates than credit cards. If you have multiple debts to juggle, give us a call on 0800 ASK MAX (0800 275 629) to discuss your options and how we can help you stay on top of your finances!

A top up can also be a good idea if you need cash for something important. With a home loan top up, you’ll get cash to use for renovations, improvements to your home, treatment for illness, or to help cover expenses and get you through the financial squeeze. While topping up your home loan can be a good way to access extra cash, it’s important to note that, in return, your mortgage will get bigger and the interest you get charged could increase so before topping up, ensure it is necessary and worth the additional expense.

2. Extend your loan term

If rising interest rates and a higher cost of living make it harder for you to meet your mortgage repayments, your lender may allow you to extend your loan term to help reduce your monthly outgoings and free up some cash in your monthly budget. By extending your loan term, you’ll pay a smaller amount over a longer period of time. That means your fortnightly or monthly repayments will go down, but you’ll add extra time to your loan and pay more interest over the life of your loan.

3. Go interest-only

To help you get back on your feet again, some lenders may allow you to switch to an interest-only loan for a short period of time. With an interest-only loan, you’ll only pay the interest charged on your loan amount, not the principal loan, so your repayments will go down. However, while your repayments will reduce in the short term to cover the interest portion of your loan only, your principal loan won’t be reducing which means your home loan will cost you more in the long run.

4. Take a mortgage repayment holiday

Another option that could provide short term relief to your financial situation and help ease the strain on your budget is a mortgage repayment holiday. With a mortgage repayment holiday, both interest and principal repayments are put on hold for a short time. During this time, your lender won’t require you to repay any part of your loan. However, interest is still charged and added to your loan during this time, which means your loan balance will increase and you’ll end up paying more interest overall. Furthermore, once the mortgage repayment holiday ends, your mortgage repayments will be higher unless your loan term is extended.

5. Talk to a Mortgage Adviser

If you are struggling to meet your mortgage repayments, already defaulting on your mortgage, or facing the threat of repossession of your home, it’s important to get financial advice and seek help right away. Don’t delay and hope things will improve. Talk to a Mortgage Adviser today to get advice about your financial situation and to find the best way to help you through the financial squeeze.