Optimising your current home loan position.
The NZ economy never stands still, so it’s important to review your home loan regularly. You might discover a switch that will save thousands. Here are some tips on what to consider and a summary of how refinancing happens.
The first step is to understand what the term ‘refinancing’ means and how it’s different from other home loan changes, like refixing and restructuring.
Refinancing is when you get a completely new loan, usually with more favourable terms, and use it to repay your existing loan. This normally involves switching to a new lender. If you want to stay with your existing lender, you can usually restructure your existing loan rather than starting an entirely new loan.
Refixing is when you choose a new fixed interest rate term after your current one ends. So you’re just putting your loan, or part of it, onto a new fixed interest rate with the same lender.
Restructuring is when you change the way your loan is set up with your existing lender. It’s usually done when your fixed interest rate term comes to an end, so you don’t have to worry about early repayment penalties. Restructuring helps to ensure your loan is still well designed to support your needs and goals as your circumstances change in life. There are all sorts of possibilities, such as adding a small offsetting loan to the mix so your savings and everyday account balances help to reduce the interest you pay. Or you may need to extend the term of your home loan to reduce your minimum repayments for a while.
Refinancing, as we mentioned above, is replacing your loan with a completely new one, usually with another lender. Refinancing often includes some refixing and restructuring, as you set up the new loan to best suit your needs.
The main reason people refinance with a new lender is to get a better deal than their current lender is prepared to offer. There are many things that might make one lender’s offer better than another’s for your situation. Even if you’re just thinking of restructuring a loan with your current lender, it’s often a good time to at least check what their competitors would offer.
These are constantly changing. If you’ve been keeping an eye on rates, you may have noticed another lender seems to consistently offer lower rates than your current one does. Even a slightly lower rate can make a big difference to what you pay over the life of the loan and how soon you can be mortgage free. Our handy rates table makes it easy to compare the latest interest rates.
While most lenders offer similar loan options, there are differences between them. You may find another lender can offer a type of loan that better suits your needs in the way it works or the opportunities it provides. For example, if you have a variable income, another lender might make it easier to increase your loan repayments online and bring them back to the agreed minimum again whenever it suits. Or you might have realised an offsetting loan would save you money, but your current lender doesn’t offer them. To learn more, see our guide about types of loans.
Each lender has their own rules on how much they’ll lend, when things like a low deposit (low equity) interest rate margin will be charged or whether mortgage insurance is compulsory. If another lender offers better conditions, it could be worth switching. For more, see our guide about low deposit home loans.
Lenders sometimes offer bonuses to attract new customers. These range from substantial cashback payments and new appliances to paying for a house valuation or your legal expenses. Just keep in mind that some have to be paid back if you take your loan elsewhere within a certain time. If you received an incentive when you first signed up with your current lender, be sure to check whether it has to be repaid if you switch to someone else. You’ll find more detail in our article about home loan cashbacks.
If your current lender has let you down a few times, you might want to jump ship to a new lender. This can seem particularly attractive if you have friends or family who rave about their lender, whenever you complain about yours. Just be sure to fully research the immediate costs and ongoing differences in interest rates and fees.
You can refinance your home whenever it suits, but there are times when the costs involved will be less and the benefits may be greater. A loan review, with refinancing included as a potential option, is something you should do on a regular basis. Interest rates, lenders’ offers and your own situation will inevitably change with time. It’s important to ensure you still have the best possible loan arrangement. Here are some common examples of when it might be good to refinance your home.
If you repay a loan while it’s still on a fixed interest rate, you’ll probably have to pay an early repayment charge (see below). So waiting until the fixed rate is about to end, and planning ahead for when it does, can make good sense. Your lender will probably let you know it’s coming to an end and suggest you lock in a new fixed interest rate in advance, often with some urgency. They’ll also explain that if you do nothing it will roll onto the floating rate. While your current lender may still be offering the best loan for your situation, now’s a good time to check. Even if it rolls onto a higher floating rate for a brief period, you can always refix it as soon as you’re sure. For tips on what to do when a fixed rate term is coming to an end see our guide to managing your home loan.
If you think you won’t have the money for an upcoming home loan repayment it’s important to contact your lender as soon as possible. Several options may be available, such as a short repayment holiday or restructuring to an interest-only home loan for a while. Another option may be to reduce your regular repayments by spreading them out over a longer term of up to 30 years. Just bear in mind this will increase the total interest you pay over the life of the loan. If your current lender can’t offer an option that meets your immediate or ongoing needs, you can always consider refinancing with another lender.
Life events can impact the type of home loan you need. You might need more flexibility or you might want to remove the temptation flexibility provides. Either way, restructuring your loan with your existing lender can help. At the same time you can check out what other lenders would offer if you refinance with them. If you’re in a personal relationship that’s coming to an end, see our article about refinancing your home after a breakup or divorce.
Urgent repairs, an addition for your growing family, a more reliable car or an overseas trip to see family. These are events that suggest it’s better to borrow the money needed rather than wait. If you’ve repaid some of your home loan or your property has increased in value, you may be able to increase your loan to provide the cash you require. You’ll need to meet the repayment affordability criteria of course. It’s also a good time to review the structure of your loan and keep refinancing with another lender in mind.
Whenever your finances change significantly, it’s important to get independent professional advice before deciding what to do. For most people, repaying their home loan faster will create significant long-term benefits. But it also pays to plan ahead and allow for upcoming life events and goals. This can involve restructuring your loan or switching to a lender who’s offering a better deal. For more, see our guide to repaying your home loan faster.
There are usually costs involved in refinancing with another lender and it’s important to take these into account. A new lender might offer to help cover some of the costs, so be sure to ask and negotiate. In the meantime, here are some of the most common refinancing expenses.
Also known as early repayment charges, these occur if you repay a fixed interest rate loan before the fixed rate contract ends. The lender apply these charges to recover their costs and lost income. If interest rates have increased they’ll be able to re-lend your amount owing without loss, so the fee will cover admin costs only. But if rates are now lower, the fixed rate term has a while to go and there’s still a lot owing, the break fee can be substantial. For more see our article on breaking a fixed home loan.
When you refinance with another lender, it’s like getting a completely new loan. Typically, you need to pay a lawyer to process the documentation and ensure mortgages over the property are released from your current lender to your new one. Some lawyers specialise in providing this service at more affordable rates, so shop around.
Your new lender may ask you to provide a current registered valuation of your property. These usually cost at least $500.
If you received a cashback incentive or other rewards when you got your current home loan, you’ll probably have to pay it back if you’re switching within a certain time. It’s usually two or three years, but each agreement is different.
A new lender may charge a set up or establishment fee of about $150 for a straightforward home ownership arrangement. You can often negotiate to have this fee waived. In addition, your current lender will probably charge fees related to repaying and discharging the loan. These are typically around $40 for a standard set up.
If you’re thinking about refinancing, a mortgage adviser (broker) can help you find the best deal for your situation. They’re paid by the lender you choose to switch to, so there’s usually no extra cost to you, but be sure to ask upfront. They’ll start by getting to know your situation and goals before recommending the best options and explaining each one to you. Here are some of the ways a mortgage adviser might help.
A good adviser works closely with multiple lenders. This means they should have detailed knowledge of the latest offers and each lender’s rules and criteria. Sometimes they can access interest rates that are better than those publicly advertised.
Advisers work with home loans every day, so they can help you work out the cost benefits of switching for each option that might suit your needs. This not only saves you time, it gives you peace of mind knowing you haven’t missed an important detail.
Once you’ve chosen a new home loan provider, a good adviser will help you prepare all the application documents. This ensures you’re represented in the best possible way and the application is processed without delay. Refinancing is like getting a completely new loan, so there can be a lot involved around providing evidence of affordability and so on.
Even after your new loan is approved, a good mortgage adviser will stay with you every step of the way. As you progress to drawing down your new loan, they’ll make sure everything happens as it should and help put things right if there’s a problem.
To learn more, see our article why work with a mortgage adviser for refinancing.
Here’s a step-by-step summary of a typical process for refinancing your home, with or without the help of a mortgage adviser.
It’s important to carefully consider what you’re trying to achieve. This might include your immediate needs and longer term goals. Writing these down and referring back to them when making decisions can help you stay on track. When you consider the facts, simply restructuring things with your current lender might turn out to be the best option.
Everyone’s situation is different, so ask your current lender for a list of the costs to break and discharge your loan, including any clawback on customer incentives. Talk to a lawyer about conveyancing charges and find out what a typical valuation costs in your area.
You may already have a good idea of published interest rates, but there’s more to explore than that. Lenders with the lowest interest rates might have challenging acceptance criteria, a limited range of loan types or no incentives (like a cashback). The quick way to do this is to work with a mortgage adviser.
It’s usually a good idea to let your current lender know you’re considering switching and why. You might be surprised by what they’ll offer to keep your business. If you’re using an adviser, it can be helpful if your current lender is one they usually work with.
If you’ve decided that refinancing will best suit your needs, it’s time to apply to your new lender. Once they’ve given you some indication that you might be approved, you can get a formal application together. This can involve considerable paperwork and financial evidence, like bank statements, records of savings and other loans, proof of income and a property valuation.
If your application is approved, the new lender will send you a letter of approval that includes all the details of the loan. If you accept this, they’ll set you up as a new customer, which requires proof of ID and so on. They’ll send the full loan documentation to your lawyer for you to work through together, sign and return. On the agreed drawdown date your lawyer will make sure your previous mortgage is repaid and discharged, and the new mortgage is registered on your property’s title.
If you’re thinking about refinancing your home, you probably have a bunch of questions in mind and will think of more as you consider your options. Everyone’s situation is different, so the best person to help you is a trusted financial adviser or mortgage broker. In the meantime, here are answers to commonly asked questions about refinancing.
It’s when you get a completely new home loan with a new lender and use it to repay your current home loan in full. If you just want to change the way your loan is set up with your current lender, that’s known as restructuring.
Most people refinance because their circumstances have changed or to save money. Or they’ve discovered another lender that offers a better deal.
Most people who refinance do it to save money, despite the costs involved. The savings are typically due to a lower interest rate, a new customer cashback incentive or a home loan set up that works better for them. If your loan balance is now less than 80% of your property’s value, you may want to increase your loan again to create a cash lump sum.
The cost to refinance with another lender will depend on your situation. If you’re breaking a fixed interest rate agreement you may be charged an early repayment penalty or break fee to cover the lender’s losses. If you accepted a new customer incentive you might have to repay it if the clawback period still applies. You should also allow for your lawyer’s fee, a mortgage discharge fee, a valuation of your property for the new lender and any loan establishment fees they might charge.
The short answer is: when refinancing won’t help you meet your immediate needs or longer term goals. That often means when the refinancing costs outweigh the benefits. If you have one or more loans on a fixed interest rate, chances are you’ll have to pay a break fee. But it could still be worth refinancing with a new lender. A good mortgage adviser can help to clarify the gains.
Many mortgage advisers recommend an annual review. The idea is to check whether your financial situation and goals are still the same, and whether you still have the best interest rates and loan structure for your needs. Even if they’re not ideal, you may just need to restructure your loan with your current lender, rather than refinancing with a new one. The point is, it pays to check regularly and plan ahead.
Reviewing and refinancing is simplified when you do some groundwork before you talk to a lender or mortgage adviser. We’ve covered the basics here, to help you plan and navigate the way forward.
The short answer to this intriguing question is ‘as often as you want to’. Refinancing, aka remortgaging, can be something you do regularly, to either save money with a better interest rate, adjust your repayments or release some equity to achieve life goals. However, refinancing always involves some cost. Also, if you apply for a
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Change is constant. When you set up your mortgage originally, the interest rates were applicable to the housing market at the time. Likewise, the size and term of your mortgage was appropriate to your income and outgoings at that time. You had a new home, lots of set-up costs and were just finding your feet
Read More »If you’re thinking of refinancing, our handy rates table makes it easy to compare the latest rates offered by many of New Zealand’s top lenders. But always keep in mind that there’s more to getting the best refinancing arrangement for you than simply finding the lowest rate.
Refinancing your home or a rental property often begins with a review of what you could afford. This helps you get the balance right between repaying your loan quickly and ending up in financial trouble because you over-reached. Our handy calculators make it easy to plan a budget, check your borrowing power and explore the repayments on various loan structures.
Budgeting is the best way to steer your finances, stay in control and prepare for managing your mortgage.
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Work out how much you could borrow based on some quick questions about your current financial situation.
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Get an estimate of what your repayments could be, based on your mortgage amount, term and interest rate.
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Before you start talking to lenders or a mortgage adviser, brush up your knowledge about home loan refinancing. Our Learning Centre has informative articles and guides that can help you to understand the options and make good decisions. They’re all written by expert authors and checked by our panel of mortgage advisers.
