26 Jan 2023

Mortgage pain: Nelson family consider selling after $2500 monthly interest rate rise ‘brings tears to my eyes’

8:35 am on 26 January 2023

By Ben Leahy of NZ Herald

File photo. Photo:

Aaron and Jessica Rubin are on the brink of selling their house.

They're battling to pay the bills for their family of two kids now rising interest rates have led their home loan payments to jump by about $2500 a month in just two years.

The couple bought their Nelson home for $1.2 million in 2021, taking out a more than $1m loan with one of the big four banks.

Initially, they paid about $4000 a month in home loan repayments. But when their one-year fixed term ended, payments jumped to $5142 a month on a refinanced 3.99 percent rate.

Now payments are set to hit $6710 in March - a $1600 year-on-year jump - should they sign on for the bank's new 6.49 percent fixed term.

Aaron said home ownership was supposed to be a big step forward for the United States-born couple's family, instead the speed of rate rises makes it feel like they're "falling behind".

"Honestly, we've been talking about just selling up.

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

"Why would we keep putting money in the bank's pocket."

With new data showing Kiwis are facing further rising cost of living rises, the pressure on home owners, like the Rubins, was only expected to grow.

Inflation was continuing its upward march with the consumer price index jumping 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.

Key contributors to the new inflation figure are rising rents, food expenses, and the cost of building new homes, CoreLogic chief property economist Kelvin Davidson said.

He said it's not "cut and dried" what the new inflation figure will mean for interest rates. However, it is most likely to lead the Reserve Bank to raise the Official Cash Rate by 0.75 per cent in February.

That will in turn likely lead banks to bump up their home loan interest rates even further.

'Lining the bank's pockets'

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

"The most disconcerting thing is that [rising interest rates] is all going to make the banks richer," he said.

"They were already super wealthy, there's already a gap between the wealthy and the poor, and this is just really cementing that gap."

He said while the official inflation figure was 7.2 percent over the past 12 months, his monthly home loan repayments had jumped 31 percent in dollar terms in one year.

When taken over two years, his monthly repayments are now set to be roughly about 68 percent higher.

And despite the size of his upcoming $6710 monthly repayments, he said most of his payments in the early years of the loan simply covered interest.

"A very small amount is going to our principal and an amazing majority of the payment is going toward interest, just lining the pockets of the banks."

It brought tears to his eyes, but his family is now considering selling their home, he said.

It may mean they have to sell for less than what they paid, but Aaron believed the extra money they save renting could help them save for their next house and come out ahead rather than paying so much cash to the banks.

Raising a family in New Zealand has been the ambition of the Rubins ever since they first visited 15 years ago.

Eventually arriving seven years ago, they first lived in Auckland, where it was incredibly hard to save, before moving to Nelson about four years ago.

"We're very outdoorsy people, we like tramping and kayaking - it's also an incredibly friendly country, everybody is super kind and generous," Aaron said.

But sadly, ultra-high house prices and the strain put on young families trying to pay home loans put a sour note on the family's love affair with New Zealand, he said.

'30-year fixed rate home loans'

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

Close to 90 percent of new homes in the US are currently bought using 30-year terms.

In 2021, US home buyers could sign onto 30-year homes loans on rates as low as 3 percent, although current rates have climbed closer to 6 percent.

The long terms gave certainty because the weekly payments are more affordable, he said.

"You can start budgeting more accordingly, you can you can start saving for your retirement, you can buy groceries without having to worry about whether you can't pay your electricity."

The US market also allows people who signed on to 30-year terms at moments when interest rates were high, to later refinance on lower rates by paying refinance fees but not facing paying penalty payments for changing home loan providers before the loan has been paid off, he said.

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

"I'm calling on the government to look into all the ways it can help."

- This story was first published on NZ Herald

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