Interest rate rises will squeeze some household budgets

Kiwis are being urged to take another look at their household budgets, following the Reserve Bank’s announcement today that the Official Cash Rate (OCR) will rise to 2.75 percent.

“The increase in the OCR means mortgage and savings interest rates are likely to rise,” said David Kneebone, Executive Director of the Commission for Financial Literacy and Retirement Income.

“Current and potential mortgage holders may need to review their budgets and start preparing for higher interest rates now, particularly in light of the Reserve Bank predicting further rises for later this year.

“Because mortgages involve repaying a lot of money over a lot of time, even slight increases in mortgage rates can add up to tens of thousands of dollars in the long haul,” said Mr Kneebone.

According to Sorted’s mortgage repayment calculator, even an increase of 0.25% in interest rates can affect a household’s budget, especially if things are already tight. For a $500,000 mortgage over 20 years, an increase from 5.75% to 6% will increase repayments by $33 a fortnight.

“However, an increase in the interest rate will be good news for savers – particularly those reliant on the interest earned off their savings for income,” said Mr Kneebone.

For example, if you have $100,000 invested now at 3.75% in a 12-month deposit, and rates go up 0.25% you’ll earn a further $250 over a 12-month period (before tax and fees).

“Whatever financial situation Kiwis are in, our advice is check in with Sorted’s free calculators to see how interest rate increases will affect them,” said Mr Kneebone.

ENDS

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