Communicate, plan, budget: How to cope with 'exceptional' jumps in interest rates if your fixed-rate mortgage is coming to an end

After a tough 2022 where inflation and the official cash rate (OCR) continued to jump, the new year hasn't brought respite for homeowners as interest rate rises start to bite and the cost of living crisis continues to hurt Kiwis. 

Kiwibank has said about 20 percent of mortgages are refixing heading into 2023, while another 50 percent will do so over the coming year - and many of them will be moving from an ultra-low rate of between 2 and 2.5 percent rate to a massive jump of a rate between 6 and 7 percent.

Mortgages fell to record lows of about 2.25 percent when the OCR was slashed to 0.25 percent in May 2020. 

But the OCR has risen sharply since then. It first increased by just 25 basis points from 0.25 to 0.50 in October 2021. From there, the hikes continued until it reached its current level of 4.25 percent.

To put it into context, for a borrower with a $300,000 mortgage, jumping from a 3 percent interest rate to 6.5 percent could mean having to find an extra $600 a month. On top of this, the prices of many essential items are still rising. 

What should I do if my cheap mortgage is coming to an end?

Chief executive of Financial Advice New Zealand Katrina Shanks told Newshub the first thing Kiwis should do when it's getting close to refixing their mortgage is to make an accurate budget. 

"We know half of the people on fixed-term mortgages will be coming up for repricing over the next 12 months and there'll be a lot of anxiety around that," Shanks said. 

"So the first thing people need to do is sit down and do a budget with what the new rates will be for them and work out the affordability of that rate."

Tom Hartmann, the personal finance lead at independent money advice firm Sorted, agreed with Shanks - saying Kiwis should be making a "hyper-accurate budget" of what's really happening with their situation. 

"You want to really make sure it's super accurate and that includes everything so that you get a really clear picture about where you are right now and where you're heading in that in the next 12 to 24 months," he told Newshub.

Hartmann recommends using a mortgage calculator to figure out exactly how much the interest rate rise will be for you in dollar figures. These calculators are offered by banks or at

Reserve Bank of New Zealand dollar notes are pictured in Singapore June 22, 2006. New Zealand's annual current account deficit ballooned to wider-than-expected record levels in the first quarter of 2006, data showed on Thursday, sending the already-battered kiwi dollar half a cent lower.
Photo credit: Reuters

Make sure you talk to your banks

Hartmann urged Kiwis to talk to their banks - who will be prepared for a period of "not normal" jump in people's interest rates.

"The key takeaway here is to work with your bank immediately because they're tooled up for this change, and they have a number of programs in place if you find yourself in difficulty," Hartmann said. 

"It's not a situation you want to be suffering in silence… because the jumps that we're talking about are not normal, these are exceptional times, so we need exceptional solutions."

Shanks agreed, saying banks would be open to negotiations because they don't want to see anyone default on their mortgage. 

"They will work with you very closely to ensure they can find an option that can allow you to repay your mortgage, make mortgage repayments," she said.

Should people consider interest-only payments? 

Hartmann said interest-only payments are not an ideal solution for Kiwis but they could be an option for some. 

"Unfortunately, with interest-only payments, you are postponing the inevitable. So in doing that, you're making the overall mortgage more expensive and you're not retiring any principal, any of that initial loan amount," he explained. 

However, if it's "what saves your house and it keeps you from having to sell… then that might be an ideal option for someone", he said.

Shanks said Kiwis that sign up for interest-only payments are making it harder in the long run because they're not "eating into your principal".

"So interest only in long term, if you stay on that, will mean you're paying more interest cost to the bank over a period of time.

"That's why the more you can eat into your principal, the less interest that you pay, the better you are financially."

Communicate, plan, budget: How to cope with 'exceptional' jumps in interest rates if your fixed-rate mortgage is coming to an end
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What about non-bank-specific options? 

Hartmann urged Kiwis to explore all their options, whether it is a bank or non-bank-specific option.

But he warned a non-bank-specific option is typically more expensive and should be avoided if possible. 

Shanks agreed with Hartmann and urged Kiwis to shop around if they're considering a non-bank-specific option - because it could work for some people. 

Some Kiwis will be better placed to deal with refixing their mortgage but they will still see their disposable incomes decline. 

Shanks urged Kiwis in that position not to panic and look at their financial situation. 

Hartmann agreed and urged Kiwis to trim their expenses from how they affect them on an emotional level.  

"So what we advocate is going through the things that you typically spend money on and if you have a number of subscriptions; Spotify, Disney Plus and Netflix - not all of those are going to feel that same level of satisfaction or fulfillment," he said. 

"So if you go through and you rate them, you just cut from the bottom and it's a lot easier to cut out and you don't feel really deprived."