It’s no secret that interest rates are on the rise and most people with a mortgage anticipate the increase, a new BNZ survey shows.
But worryingly, it also found the majority intend to make no changes to their mortgages in response the rate increases.
The BNZ Financial Futures research found that home owners with mortgages were in the dark about how the impact a 1% interest rate rise would have on their household – three out of five people underestimated how much extra people will pay on the average mortgage size.
BNZ’s director of retail and marketing, Paul Carter said, “It’s concerning that despite 70% of people with mortgages anticipating interest rates will rise this year, 67% of mortgagors are not considering making any changes to their mortgage.”
The survey found 24% of people said they regularly monitor interest rates and proactively restructure their mortgage.
A BNZ spokeswoman told NZ Adviser
many homeowners tend to have the mentality of ‘setting and forgetting’ their mortgage.
“This probably comes down to people not appreciating how small changes to their mortgage repayment schedule can reduce the lifetime of their mortgage and how much interest they’ll pay,” she said.
“Our main concern is that people will end up paying unnecessary interest over the lifetime of their mortgage.
“For most homeowners interest rate rises will change their household budget and it’s important they consider how they can react – they might want to fix a bigger part of their mortgage or increase their repayments slightly while rates are still near their lowest level in a generation.”
She said the third party channel can help increase awareness on the issue with their clients, having conversations about how their mortgage is set up and what repayments they can manage.
One in five home owners said they were likely to extend the term of their mortgage if their mortgage payment increased by $120 per fortnight, the research found. Nearly one in three said they’d look to reduce utilities like insurance, petrol, heating and power.
Carter said it’s important New Zealanders understand all their budgeting options in a changing mortgage environment.
“New Zealanders will still be enjoying some of the lowest rates in a generation. So it concerns me that too many people are jumping straight into what seems to be the easy option, which is a couple more years on the mortgage – especially when the changes we’re talking about are small.
“BNZ, like most New Zealand banks, stress-tests people with mortgages at an interest rate higher than the current rates, so we know that budgets and incomes can manage rate rises much bigger than this.
“So while we know our customers have room to move within their budgets to absorb any rises, it’s particularly concerning that 20% of people with mortgages would extend the term of their mortgage if their repayments increased by $120 or more, as this is only going to set them back in the long term,” he said.
“It’s a good idea to occasionally have a sobering conversation about the household budget and consider some ‘what ifs’.
The BNZ Financial Futures research was conducted by Colmar Brunton, a New Zealand Market Research Company surveying a total sample size of 2,000.