About a third of New Zealand households are currently paying off a mortgage on their own home.

For many, it is one of their biggest household expenses.

Home loans are often paid off over two or three decades, and life can change along the way. Here are some things to think about if you’ve been wondering how you might be able to better manage your mortgage loan through those changes,

Home loan lenders check you can pay

No one likes to see their interest cost increase, but your lender usually factors in this possibility when they assess your loan application.

When you applied for your loan, the assessment of your application will have included a check not only that you could afford repayments at the current interest rate, but that you could handle an increase.

Lenders use a “test rate”, which is often a couple of percentage points higher than advertised rates, to make sure that home loan borrowers can continue to meet their mortgage repayments, even if rates increased slightly.

As long as your income has not dropped since that time, and you have not taken on additional debt, you can feel a bit reassured that your lender has assessed that you will most likely be able to cope with a slightly higher interest rate and repayment.

A budget buffer can help

While it is not always possible, it’s very helpful to build a bit of a buffer into your household budget so that you have some protection if something changes.

If you haven’t committed every dollar you earn to an expense, it may give you more leeway to cope with a temporary drop in income or an increase in interest costs.

If your budget is uncomfortably tight, you may find you can create some space by looking at whether you can trim any of your current expenses, or increase your income. Going through your spending in the past three months might identify places where you could save money, or identify things you may no longer need to pay for, like unused subscriptions. Even freeing up a small amount can create a big difference over time.

What can you do if income changes unexpectedly?

If you’ve hit an unexpected change in your income, you may need to take action, especially if it means you will have difficulty meeting your home loan repayments.

It’s generally helpful to let your lender – or us as your advisers – know as soon as possible so that we can help you put a strategy in place.

Depending on what’s happened, there may be various ways you could respond.

You could talk to your lender about whether a period of interest-only payments might be more affordable, or even a temporary pause on repayments. These can affect the rest of your home loan term, so it’s important to fully understand what your options are.

Don’t wait until things become really tough before you ask for help.

An emergency fund could help

Many financial commentators suggest that households should have three to six months’ worth of expenses set aside in an emergency fund. This can be called on if you go through a period of decreased income or unexpected expenses.

That can be extra helpful if you’re servicing a mortgage.

Insurance can sometimes step in

If you have personal insurances in place, such as income protection or mortgage repayment cover, they may help if you are off work because of illness.

You need to have the cover in place before you have to call on it, though. Our team of insurance experts can help assess whether your insurance policies are really appropriate for your needs.

We can help

If you have questions about your home loan, or are worried about repayments, get in touch with the team at SHARE today. We are home loan experts and can help you plan ahead and work to protect your lifestyle, no matter what life throws your way.

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.