A Short Guide to Mortgage Refinancing in New Zealand

Mortgage refinancing is a powerful tool to ensure your debt structure is aligned with your current financial circumstances and also supports your longer term financial strategy and goals. 

Your mortgage structure (how your home loan is split between fixed rate and variable rate portions) has implications for when you can refix (restructure) your existing loan or consider refinancing with a new structure at a new bank. Once you commit to a fixed term loan you can’t get out of that agreement with the bank without incurring break fees, which can be expensive.

For this reason you need to understand the potential benefits and costs of mortgage refinancing. This allows you to plan ahead for when you might want to refinance to meet your current and longer term financial objectives.

Step 1 - Understand the benefits of mortgage refinancing.

1. Pay down your mortgage more quickly - Home loan refinancing is a useful way to help pay down your mortgage more quickly. - Cash Back Incentives - Banks offer cash back incentives to refinance your loan of up to 1% of your loan balance. For example, if your home loan balance is $650,000 you can get up to $6,500 cash back, less legal fees of around $1,500. This leaves you with $5,000 you can use as a lump sum payment to further reduce your loan balance. Banks will charge clawback fees if you refinance to another bank within 3-4 years of receiving a cash back offer. This means you can have a strategy of refinancing every 3-4 years over the life of your loan and use the cash back to pay down your loan. Over the life of a typical 30 year loan, this can reduce your loan term by 1-2 years. What’s more, you’ll also save $30-50k in interest payments. - Debt Consolidation - Refinancing can allow you to consolidate your debt and get rid of any high interest debt you may have accumulated (such as car loans or credit card debt). Debt consolidation will reduce the interest you pay, meaning you can pay down your loan principal faster. - Obtain Lower Interest rates - A new lender can often offer a better interest rate, allowing you to pay your loan down faster.
   

2. Improving Cash Flow with a loan term adjustment - Changing your loan term duration of your loan) to reduce loan repayments to make cash available for other everyday expenses or financial goals. 
   

3. Access Equity - If you have equity in your home you can refinance this to meet other financial objectives such as investment opportunities or pay one off unexpected expenses.

Step 2 - Plan ahead

Planning ahead is key to ensuring you get the most benefit possible out of your mortgage structure and the ability to refinance. 

Start by examining your financial strategy - a good financial strategy for most people is a blend of paying down your mortgage as quickly as possible while also saving and investing for your retirement. You’ll also want to have a decent lifestyle! 

Once you land your financial strategy, you can then consider key life events with a significant financial impact - getting married, buying a house, financing a private medical procedure and so on.

A final consideration is the wider economic environment. This includes factors such as where we are in terms of interest rate cycles and what the Reserve Bank is likely to do with regulatory settings in the near future.

1. Map out the key dates of your financial strategy  - Clawback period dates - you can refinance every 3-4 years to take advantage of bank cashbacks. Take care to understand the clawback period end date so you can make changes to your lending accordingly, without paying extra fees. Key investment event dates - Knowing when you plan to purchase or divest an investment property, restructure debt on an investment property, or free up equity for other investment opportunities ensures you can complete any required restructuring or refinancing at the optimum time.  - Map out dates for key life events - we can’t predict the future but some life events you can reasonably plan for. Consider a drop in income if a household income earner needs to retrain for a new role or take parental leave. Or perhaps you’re needing to budget for a wedding, children’s orthodontic work or an increase in expenses as children start attending fee paying schools. These types of events can mean you need to free up cash to meet expenses.
   

2. Plan for what is happening in the wider economy - This can be a complex area and obviously no one has a crystal ball. At Fit Financial, it is our job to keep across economic forecasts and changing domestic and international conditions. We’re always happy to chat through our perspective on market conditions.  

A good plan enables you to implement the right home loan structure ahead of time, with fixed term expiry dates understood and organised to meet the requirements of your plan.

Step 3 - Talk to a  Mortgage Broker 

Mortgage brokers provide free and ongoing advice. At Fit Financial we can help you plan for your financial future, implement any loan structure or refinance changes and provide regular reviews and advice when your loan term comes to an end.

The Benefits of Working with a Mortgage Broker

At Fit Financial we can provide;

• Expert Advice: Get professional mortgage advice that considers your personal and financial circumstances.

• Access to the best Interest Rates: Mortgage brokers will negotiate on your behalf to access the best rates available.

• Time Savings: We manage the initial research and mortgage application process on your behalf, from initial consultation to settlement.

• Stress-Free Advice: Navigating the complexities of loan products can be overwhelming. A mortgage broker simplifies this process.

• Free service: for most of our clients, Fit Financial’s mortgage advice service is 100% free.

Contact Fit Financial today, to see how we can help provide mortgage and insurance advice, fit for your future.