Six tips for managing your mortgage

Reserve Bank Governor Allan Bollard refrained from moving interest rates this week, but economists predict those at the mercy of market forces can expect the return of hefty interest rates in coming years.

The Weekend Herald approached four financial experts for advice for those struggling with mortgages - or considering taking one on.

1) Allow for possible loss of income over the mortgage period.

Bernard Hickey of interest.co.nz reckons many families rely on two incomes, and buyers have to consider their ability to repay debt "if your wife accidentally falls pregnant". As most mortgages were taken for a term of at least one to 15 years, "if you have a two-income family, at some stage, someone in the family is not going to have a job".

2) Be prepared to divide your debt between floating and fixed.

Herald financial columnist and seminar presenter Mary Holm says people should consider splitting their mortgage payments up to three ways - floating, short-term fixed and long-term fixed. Such a move had the great advantage in that "you don't end up being hacked off" in the event mortgage rates change suddenly.

3) Keep repayments at the same level, even if interest rates drop.

BNZ chief economist Tony Alexander suggests those who find their mortgage repayments reducing after a fall in interest rates should continue repaying debt at their old level to heavily cut the term of their mortgage.

4) Do not buy a rental property solely for the capital gain. Treat it like a business.

Tony Alexander says would-be landlords should look at houses with a view to regular improvements to earn more rent during the term of the ownership. Mary Holm agrees, as she believes there is a possibility future legislation, or a tightening of current law, could see the Government targeting capital gains.

5) Consider staying renting.

Current low rental yields - running at about 4 per cent - are a bonus for tenants as it means rents are generally cheaper than mortgages. Institute of Economic Research senior economist Shamubeel Eaqub says that for those unsure of their finances, it could pay to remain in a home owned by someone else, for the time being.

6) Don't expect interest rates to stay low

Bernard Hickey says rates have averaged about 8 per cent in the previous decade, and homeowners must assume they will be nudging 10 per cent in the next five to 10 years.