If you own a mortgaged home, you probably already know this: after years of mortgage rates heading south, the trend is now upwards. Those on a floating rate have already felt it, and for many other home owners, it's only a matter of time before fixed-rate expiry dates start rolling in, bringing higher repayment amounts.
So, what can this mean for you? And what does insurance have to do with it? In a nutshell, if you've taken out income protection or mortgage protection to secure your ability to repay the home loan — now could be a good time to review your cover. Read on to learn more.
So, what's happening?
The era of lower-than-ever mortgage rates came to an end in the second half of 2021, when the Reserve Bank increased the official cash rate, to keep a lid on inflationary pressures. As a result, New Zealand banks started to increase their home loan interest rates, taking them well off their previous historic lows.
This is just a top-level summary, of course, as we don't provide mortgage advice. So, if you have any questions about your home loan, including economists' predictions on rate movements in the next few months, your mortgage adviser is the best person to ask.
What we can do, however, is help you ensure that you have appropriate level of cover for your changing needs, taking into account rising mortgage costs as well.
Does your mortgage protection need a tune-up?
The future is unpredictable by nature, and that's true for interest rate trends and your personal circumstances alike. But you can take steps to minimise the financial cost of your most likely risks.
The question is: if you were suddenly out of work and without an income, would you be able to meet your (now rising) mortgage repayments?
Getting mortgage protection insurance is a key way to secure your ability to repay the home loan should you become sick, injured or disabled. But over time, it's also crucial to ensure that this safety net remains aligned with your situation.
Usually, if mortgage repayments increase, most insurers allow customers to increase the value of their mortgage protection cover, sometimes without the need to provide further medical details. However, keep in mind that terms and conditions may apply, for example depending on your age.
If it's been a while since you last reviewed your mortgage cover, please don't hesitate to contact our friendly advisers at LifeDirect — we can help you check that the level of cover you have is enough to meet your current mortgage repayment amount.
What about your income protection?
If you own a home, you might have taken out income protection to cover your mortgage repayments as well as other expenses.
Once again, it's a good idea to review your insurance by taking mortgage rate increases into account, especially if it's been a while since you got cover. Generally speaking, you can only change your level of income protection cover if your income changes. For example, if you get a pay rise at work, you may be able to apply for a cover increase, with terms and conditions likely to apply in terms of annual limits and/or timeframes.
That's why we recommend checking your income protection cover amount regularly, and considering whether any changes are required when your income changes. So, while you cannot usually increase your level of cover just due to rising mortgage rates, you can make sure that your cover keeps up with your income. If your income has reduced, reducing your income cover may reduce your premiums, and you could put those savings towards the mortgage.
And of course, if your income has increased, updating your income protection accordingly means you'll have a higher replacement income that might be needed to help cover your living costs. Whatever the situation, it is important that the level of cover is right for your needs and adequate to cover your financial commitments and living costs, should something happen to you.
Get in touch — we can help you understand whether you can make any adjustments.
Here for your financial future
Looking at protecting your financial future? Is it time to review the cover you have in place, and perhaps explore other options as well? Call us on 0800 800 400, start a Live Chat or fill in our contact form to get in touch with our team.
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.