Mortgage pain: Nelson family considers selling after $2,500 monthly rate hike ‘brings tears to my eyes’

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By Ben Leahy van

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Aaron and Jessica Rubin are about to sell their house.

They are fighting to pay their family’s bills with two children as rising interest rates have caused their mortgage payments to increase by about $2,500 a month in just two years.

The couple bought their home in Nelson for $1.2 million in 2021 and took out a loan of more than $1 million from one of the four major banks.

Initially, they paid about $4,000 a month in mortgage payments on their home loan. But when their one-year fixed term ended, payments rose to $5,142 per month at a refinanced rate of 3.99 percent.

Now, March payments will be $6,710 — a jump of $1,600 year-over-year — if they sign up for the bank’s new 6.49 percent fixed term.

Aaron said homeownership should be a big step forward for the US-born couple’s family, but that the speed of rate hikes makes them feel like they are “falling behind”.

“Frankly, we talked about just selling.

“We could go back to renting and save $500-$600 a week to save for another house.

“Why should we keep putting money in the bank’s pocket?”

With new data showing that Kiwis are facing a further rising cost of living, the pressure on homeowners like the Rubins was only expected to increase.

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Inflation continued on its way up with the consumer price index rising 7.2 percent in the 12 months to December, Stats NZ said today.

This followed similar jumps in the September and June quarters, it said.

The main factors contributing to the new inflation rate are rising rents, food spending and the cost of building new homes, said CoreLogic chief economist Kelvin Davidson.

He said it’s not “cut and dried” what the new inflation rate will mean for interest rates. However, it will most likely lead to the Reserve Bank raising its official cash rate by 0.75 percent in February.

That, in turn, is likely to cause banks to raise their interest rates on home loans even further.

‘Filling the pockets of the bank’

But that prospect frustrates Aaron, who thinks the banks are greedy.

“That’s the most disturbing thing [rising interest rates] everything is going to make the banks richer,” he said.

“They were already super rich. There’s already a gap between the rich and the poor, and this just widens that gap.”

He said while the official inflation rate over the past 12 months was 7.2 percent, his monthly home loan payments had risen 31 percent in dollar terms in a year.

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Taken over two years, his monthly repayments are now about 68 percent higher.

And despite the size of his upcoming monthly payments of $6,710, he said most of his payments in the early years of the loan simply covered interest.

“A very small amount goes to our principal and an astonishing majority of the payment goes to interest, right into the pockets of the banks.”

He was teary-eyed, but his family is now considering selling their home, he said.

It may mean selling for less than what they paid, but Aaron believed the extra money they save by renting could help them save for their next home and move forward instead of spending so much money on to pay the banks.

Starting a family in New Zealand has been the Rubins’ ambition since they first visited 15 years ago.

They finally arrived seven years ago and first lived in Auckland, where it was incredibly difficult to save, before moving to Nelson about four years ago.

“We’re very outdoorsy people, we love hiking and kayaking — it’s also an incredibly friendly country, everyone is super nice and generous,” Aaron said.

But unfortunately, extremely high house prices and pressure on young families trying to pay their home loans are straining the family’s love affair with New Zealand, he said.

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’30 years of fixed interest home loans’

One thing Aaron hoped could be imported from his native United States was 30-year fixed rate home loans.

Nearly 90 percent of new homes in the US are currently purchased with 30-year terms.

In 2021, U.S. homebuyers could take out 30-year home loans at rates as low as 3 percent, though current rates have risen closer to 6 percent.

The long terms provided security because the weekly payments are more affordable, he said.

“You can start budgeting better, you can start saving for retirement, you can shop for groceries without having to worry about not being able to afford your electricity.”

In the U.S. market, people who signed up for 30-year terms at a time when interest rates were high can refinance later at lower rates by paying refinancing fees, but without having to pay penalties for switching mortgage lenders before the loan is paid. paid off. , he said.

The 30-year fixed-rate loans only came about in the US as a result of government intervention, which emphasized that governments can do things to help families, he said.

“I call on the government to explore all ways it can help.”

– This story was first published on NZ announces

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