The number of households behind on their mortgage repayments is up 26 percent on the same time last year, with 19,300 accounts past due.
New data from credit bureau Centrix showed mortgage arrears climbed for the eighth consecutive month in March.
Overall consumer arrears rose to 11.8 percent of the credit-active population, or about 427,000 people.
Managing director Keith McLaughlin said mortgage repayments were typically the top priority for borrowers and the high level of arrears showed the effect of high interest rates and biting inflation.
"It really is an indication that some households are really starting to feel the pinch of the increase in interest rates, coupled with the increase in cost of living," he said.
The continued trend of mortgages going into arrears was concerning, McLaughlin said.
"Kiwis are pretty clever about prioritising who they pay.
"You tend to pay your car loan or your mortgage first, and then if things are a bit tight, you might put your buy-now-pay-later or your personal loan back a month or so and then pick that up at a later time."
New mortgage lending was also down as sales volumes continued to slump, with lending down nearly 48 percent year-on-year.
Car loan arrears were also up 3.6 percent year-on-year, McLaughlin said.
"Nobody wants to lose their car because that often affects your employment as well, and you use your car to get to work."
He expected the number of people in arrears would increase in the coming months.
"I can't see a circuit breaker. Maybe come September, October, when Summer is approaching and there's more stability and interest rates and also in the cost of living, there's more clarity - more consumer confidence, we might start to see things improving.
"But at the moment, I can't see anything on the horizon that's going to dramatically change that."
Household balance sheets resilient - Reserve Bank
The Reserve Bank said the banking system was resilient in the face of rising interest rates, although it expected more borrowers would struggle to cover rising mortgage repayments.
Deputy Governor Christian Hawkesby said debt servicing costs have risen significantly from historically low levels during the pandemic.
"For households with a mortgage, the share of disposable income required to service the interest component of their mortgage debt is expected to more than double from its recent low of 9 percent to around 22 percent by the end of this year," he said.
Hawkesby said household balance sheets remained resilient and most mortgage-holders had substantial equity buffers.
He said early-stage arrears had been increasing, but that took many borrowers back to where they were pre-pandemic and arrears levels remained low compared to the period following the Global Financial Crisis.
"We are not currently seeing widespread financial distress amongst households or businesses, which reflects the strength in the economy and labour market to date," Hawkesby said.
"However, more borrowers may fall behind on their payments this year, given the ongoing repricing of mortgages and expected weakening in the labour market."
Hawkesby said banks were in a good position to support their customers should they need help, with recent profits and strong capital positions.
He encouraged borrowers feeling financial pressure to chat to their banks and see if hardship programmes might be available.