Feature article

What if mortgage rates go up? How to cope with rising home loan costs

Rising mortgage rates can be difficult to deal with but there are ways you can make it easier

Last updated: 20 December 2023

If you’ve got a mortgage, whether it's fixed or floating, news of rising interest rates can be stressful to hear. And fair enough — your repayments are probably your largest household expense.

Despite that, there are ways to manage the transition to higher rates and make coping with the change less stressful. Here’s how you can prepare and get through it.

How to cope with rising interest rates

Rising interest rates may put a squeeze on your household budget but approaching the problem with a plan can make it all easier. So, start preparing early before your interest rates increase and you’ll find the transition much easier.

Find out what your new rate and repayment amount will be

If your fixed interest rate period is about to end, speak to your bank or mortgage broker far in advance of the change. They’ll be able to help you calculate your new repayments, advise you what your new interest rate could be, and lock in your new rate up to three months in advance.

It’s a good idea to do this two to three months before your rate is due for renewal to give you as much time as possible to plan and prepare.

Understand and control your spending

Before your mortgage payments change it’s a great idea to download a few months of your bank transactions and take a close look at where your money’s going. Budgeting tools like Pocketsmith can help automate this and split your spending into categories like entertainment, groceries and fuel.

Once you’ve taken a good look at your budget ask yourself — are you overspending in any areas? Are there any expenses you can easily cut back to make room in your budget? Every little bit matters and cutting back spending is the easiest and least costly way to cope with interest rate rises.

Restructing your loan can make repayments easier.

Restructure your loan

If cutting costs isn’t going to work you may be able to find relief from rising rates by restructuring your loan – speak to your mortgage broker or lender about whether this could work for you. If you’ve had your loan for a while, or you’ve arranged a term less than 30 years, increasing your loan term while interest rates are high could be a great way to make life easier.

For example, let’s say you’ve got a $500,000 home loan with a 7.3% interest rate and a 20 year term – your repayments will currently be $3,968 per month. If you increase your term to 30 years, your repayments will be just $3,428 (that’s a saving of $540 per month and $6,480 per year). Keep in mind that, by extending your term, you’ll pay more interest over the life of your loan.

You could also consider other loan features such as offset accounts. These allow you to link a savings account to your mortgage, and reduce the principal amount that you pay interest on by whatever amount is in that account.

Try interest only or take a mortgage holiday

If you can’t make ends meet and you need short term relief, it may be worth talking to your lender or mortgage broker about whether an interest only loan could work for you. An interest only loan is exactly what it sounds like – you won’t make any repayments on the principal owing, you’ll only make interest payments.

For example, let’s say you had the same $500,000 home loan, 7.,3% interest rate and 30 year term we mentioned earlier. If you pay principal and interest, your monthly repayments will be $3,968, whereas if you pay interest only they will be almost $1,000 lower ($3,042).

Your last option, in extreme cases, is to request a mortgage holiday from your bank. This is a short term break in repayments, and is usually only an option if you’re experiencing genuine financial hardship. Talk to your lender or mortgage broker about whether this is an option for you, but keep in mind that interest will keep accruing during your mortgage holiday and you may owe more afterwards.

There is help available if you're struggling with your mortgage.

Get help when you need it

If you’re struggling to manage your finances and your debt, there is help available – and it’s always best to reach out early, before you’re in real trouble. Here are a few free services you could use:

  • CAP provides a free debt management service. Call them for free on 0508 227 111.
  • Debtfix is another charity that provides a free service to help people struggling with debt. Contact them here.
  • MoneyTalks is a free service that helps people with all money matters, including debt. Contact them here.

It may also be worth talking to a mortgage broker to help clarify your options and advocate on your behalf with your bank.

When will interest rates go down?

When you’re experiencing mortgage stress it may seem like it’s going to go on forever, but the reality is - high interest rates are only temporary. If you can manage your mortgage through the difficult times there’s a good chance that rates will drop and it’ll get easier.

To find out when interest rates will finally decrease check out these forecasts from the experts.

DISCLAIMER: The information contained in this article is general in nature. While facts have been checked, the article does not constitute a financial advice service. The article is only intended to provide education about the New Zealand mortgages and home loans sector. Nothing in this article constitutes a recommendation that any strategy, loan type or mortgage-related service is suitable for any specific person. We cannot assess anything about your personal circumstances, your finances, or your goals and objectives, all of which are unique to you. Before making financial decisions, we highly recommend you seek professional advice from someone who is authorised to provide financial advice.


Ben Tutty
Ben Tutty

Ben Tutty is a regular contributor for Trade Me and he's also contributed to Stuff and the Informed Investor. He's got 10+ years experience as both a journalist and website copywriter, specialising in real estate, finance and tourism. Ben lives in Wānaka with his partner and his best mate (Finnegan the whippet).