KEY POINTS:
What can I do about rising mortgage rates?
Fixed-term mortgage interest rates are the highest they've been in seven years, and with a third of fixed mortgages up for renewal in the next 12 months, home owners are justifiably worried. So what should you do when your cosy two or five-year term ends and you're faced with higher interest rates?
Blair Vernon, general manager of strategy and marketing at Bank of New Zealand, said it was important for those coming off a fixed term to be prepared - early. "Leaving it to the last minute to consider your options is not a good idea."
Miranda Caird of Roost Mortgage Brokers agreed. "Now's a good time to have a look at your mortgage - a lot of people might not have the product that best suits their needs."
If not, talk to your bank or mortgage broker, she said. "Banks don't just have one product."
Caird also advised looking at consolidating your debts. "If mortgage interest rates are going up, then other rates will as well."
Paying off a lump sum to reduce your mortgage was also an option, Caird said, but watch out for nasty break fees if you did so before your fixed term was up.
Higher interest rates ultimately meant greater repayment costs, Vernon said, but if it was possible to absorb them then mortgage holders should do so. But if the change in interest rates was greater than you could tolerate, there were plenty of other options. "Maybe it's lengthening the term to soften the interest blow."
But he warned of a common trap: if you do need to soften your mortgage temporarily because of interest rates, make sure you don't keep it that way when rates drop.
Jeff Matthews, Spicers Wealth Management senior financial adviser, said that when interest rate were high, reducing your mortgage was a good investment.
"If you look at mortgage rates at around 9 per cent for a fixed term, and you assume on a 33 per cent tax bracket, that's 13.5 per cent you'd need to earn off another kind of investment, before tax [to match it]."
Blair Vernon said fixed rates were probably at a peak so warned against taking out long-term fixed loans. If mortgage holders were on a five-year fixed rate now, they should not roll straight over to another five-year term.
Mike Davy, housing manager for Westpac, agreed. He advised having a portion of the loan floating, to allow for lump-sum payments, and to fix the rest for up to two years only.
"By the end of 2008, Westpac believes the economy will have slowed sufficiently to bring inflation back within the Reserve Bank's comfort zone. At that time, we expect the RBNZ to ease the official cash rate back toward 6 per cent."
Is now the time to renovate the house?
While the country's $13-billion-a-year housing market is hardly falling over, latest figures show property prices are slowing - the median house price in Auckland slipped from $452,000 in April to $450,000 in May. So, is now a good time to splash out on that new kitchen? Is it possible to over-capitalise on your house?
Architect George Hilgeholt of Auckland's Architecture Without Ego said home owners thinking of renovating should keep the real estate mantra - location, location, location - in mind, and always check what nearby houses were selling for before blowing the savings.
"If you want to sell, price is always gauged on the house across the road, or round the corner."
Fellow Auckland architect, Michael O'Sullivan, believed that while people should stick to what they could afford to pay for when renovating, they should never let the market dictate their do-up decisions.
Auckland property investment strategist, Tanya Kwasza of Catalyst2 was also more positive. If you could afford to pay for the home renovations, then do it, she said.
Do I keep my investment property?
When it comes to that most popular of kiwi investments, the rental property, opinion is divided.
Jeff Matthews said many investors had been selling down.
"Some people with property have been rationalising their portfolios, they have been getting rid of the stuff that has got limited potential because of the area it is in."
If a property investment was giving only a very small return, then selling it at a good price could be the way to go, he said.
Catalyst2's Kwasza saw it differently. Her advice: hang on to all your properties - "you will always ride out any crest in the waves". She advised not to bail out on investment properties for fear of higher future repayments, but to work through the financial squeeze.
Should I cut up the credit card?
In toughening times, banks often look at credit card defaults as one of the first signs of customers running into money trouble. Mortgages, food, even cellphone contracts are often paid before credit card bills, they say.
Happily, the banks now offer low-interest credit cards, and it's a good option if you're struggling.
BankDirect's Low Interest Visa card charges 10.95 per cent, though this will increase to 11.95 per cent on July 16.
In December last year, ASB introduced its Low Interest MasterCard rate, charging 11.95 per cent. This is also going up to 12.95 per cent on July 16.
Responsible use of the credit card was obviously imperative, Stuart McKinlay, country manager for MasterCard, said.
Unsurprisingly, McKinlay did not think cutting up the card was a good idea.
"I don't think that's great advice for the masses," he said. "There's some people who that is good advice for. Some people who have no restraint aren't able to pay back their obligations ... but that's a minority."
Darryl Evans of Mangere Budgeting and Family Support Services disputed that, pointing out that New Zealand had the highest credit card debt in the Western world. But the introduction of low-interest credit cards was a step in the right direction.
Is now a good time to change jobs?
Unemployment is very low - latest figures show only 3.8 per cent of working-age Kiwis are out of a job.
Yet the high kiwi dollar appears to be creating chaos, particularly in the manufacturing sector, forcing companies to downsize and shift operations overseas. Fonterra, Fisher & Paykel and Michael Hill are just three familiar names to announce job losses recently. Not to mention TVNZ and SkyCity.
Auckland career consultant Kingsley Gainsford, told the Herald On Sunday now was a good time to be looking, and weighing up options. "The opportunities are out there. What I suggest is people have a B plan, for if or when something goes wrong with the A plan."
He suggested always keeping an up-to-date CV, always looking ahead to the next step as there were no guarantees about what may happen to the job market.
He said that adaptability was key to career security.
Should I be in KiwiSaver?
If tough times are coming, is putting 4 per cent of your income into KiwiSaver still a good idea?
Tracey Berry, Westpac's Head of Wealth Management, said it was important to remember that KiwiSaver was an investment that would pay off in the long term.
"In terms of the benefits that are being made available, they are so attractive that you would want to try and find a way that you would participate in KiwiSaver.
"I would be encouraging all people to look at KiwiSaver and whether it's suitable for their needs. Get some advice. Make sure you can work it into your budget, because the incentives that are on offer will mean that [you] get the sort of return that [you] could never expect to get out of any other type of investment. So it is essentially free money."
KiwiSaver members can take a contributions holiday after putting in money for a minimum of 12 months.
"If you can afford to do it, then do it," Berry said.
Spicers' Jeff Matthews said it annoyed him to see people pulling out of their regular savings and investment when times got tough.
"With the advent of KiwSaver - people shouldn't be turning the tap off, in fact that's when you should be putting more in if you can - when the markets are down. But I know very few people who do that."
Should I completely avoid finance companies?
All finance companies are not equal, and a survey shows that Kiwis have been somewhat cavalier when investing in them.
Research conducted by TNS and RaboPlus found that just 30 per cent of people considered guarantees and protections offered when looking at investment. But 72 per cent looked at what interest rate was being paid.
RaboPlus general manager Mike Heath is proud of his company's AAA credit rating, but said that many New Zealand investors did not really understand what that meant.
"Thirty-seven per cent of the people surveyed understood that AAA was a high credit rating, but only 8 per cent understood... that it meant that it was low risk."
Finance companies should be offering higher interest rates than they did, but they don't have to since local investors would put money into them anyway.
Is there anything good about the high kiwi dollar?
The answer is yes. With the dollar at a record high of US78c, it's a good time to invest offshore.
And it's also a great time to take an overseas holiday.
"This year is particularly good for the travelling public, not just because of the high dollar but because New Zealanders as a whole are feeling quite secure," said Brent Thomas from House of Travel in Christchurch.
A report out late last week indicated the kiwi could topple. The Economist magazine reported that currency dealers had over-fed themselves on New Zealand dollars in the past four months, according to its latest "Big Mac" index.
The index showed the price of a Big Mac in New Zealand was now the equivalent of US$3.59. Americans pay only US$3.41.
The conversion assessed the kiwi as being 5 per cent overvalued against the US dollar.
