Refinancing a Mortgage and What It Means

Written by Money Empire

September 27, 2022

Are you looking at refinancing a mortgage and not sure where to start? Our article will provide everything you could possibly need to know about refinancing a mortgage or refinancing your home loan in New Zealand.

Let’s take things easy to begin with… 

What is refinancing a mortgage?

Refinancing means you’re taking your mortgage from one lender to another. This means you’re going from one bank, or alternative lender, to another. By doing this, you are essentially paying off your loan to your lender, and taking out a new loan with a new one. 

What is the difference between refinancing, refixing, or restructuring a mortgage?

These three are often lumped into one category, but these three couldn’t be more different! These are different situations (rather than approaches) with your mortgage or home loan.

Refinancing is taking your home loan from one lender to another.

Refixing is locking in a new interest rate once your current fixed interest rate period is up. This means at the end of your current interest rate period, you will be locking in a new interest rate for a certain amount of time. 

Restructuring is reviewing how your existing loan works – it often comes in at the same time you’re refinancing or refixing. You can also do this at any time, but it might incur a break fee. Typically when rates are going up, as you’ll be going from a lower rate to a higher one, you might not need to pay a ‘break fee’ but will be charged an admin fee (usually much smaller than a typical break fee)!

When should you look at refinancing a mortgage?

Everyone’s situation is different, from when they first bought the house to the time they’re looking at their mortgage or home loan and budget. All decisions you make need to work the best for your financial future and make sure you continue to build your empire. 

Here are some usual situations we see people refinance a mortgage:

  • Life changes: if someone has had a child, gotten married, or have a loved one recently pass away.
  • Credit policy changes: has the bank made any changes in their policies for credit.
  • Interest rates: a very competitive market especially in NZ, often banks are offering better rates than the current ones.
  • You’re up for a refix: same as above really, banks offer better rates than others, it’s time for a refix and you’re thinking of making a switch!
  • Are they offering a cashback: sometimes banks offer a cashback to get you to switch to them – check out our whole blog on mortgage cashbacks here.

What are some reasons to refinance a mortgage?

Everything we’ve said above… Plus a little more.

  • Life changes, credit policy changes, refix time, cashback offerings… Plus a few more:
  • You have been on a period of interest only which it expires soon, and the bank won’t allow you to go interest only again, so naturally you would switch to a bank that can.
  • Or if you want to make some changes to your mortgage to help you achieve your desired future, like an offset facility, revolving credit, top up, etc.

Refinancing is a super competitive market, with lots of banks offering attractive deals to get people doing the ole switcheroo. 

What is the refinancing process?

You will see many articles and blogs saying ‘think’ and ‘consider’, but nothing out there really goes into detail of what actually happens when you go up to refinance your mortgage. 

This is a general gist of what happens.

  1. You reach out to your adviser (if you haven’t already) and tell them your plan to move. They will get you in a good space and make sure you apply to the right bank for your move as some banks will have different criteria. Your adviser will give financial advice based on your personal financial situation and you can discuss the pros and cons to this idea.
  2. During this time you and your adviser will engage a lawyer.
  3. Send across your bank statements, proof of income, and anything else the bank or lender requires from you. 
  4. Your adviser and loan writer will write your loan application for you, explaining why you wish to refinance and where you’re at – they will make sure you have the best possible chance at getting this loan approved.
  5. If your loan is approved, your financial adviser will send you your letter from the bank outlining your new terms. 
  6. Your lawyer will help you sign any documents for the new home loan.
  7. Et voila! 

Handy tips you should know before you refinance a mortgage?

The biggest one we see a lot of people missing is: you have to engage a lawyer to refinance from one lender to another. You can’t just make the switch easily, because your bank will need security on the new asset.

Make sure the term of the mortgage is what you want. For example, if you’re on 25 years at one bank and you want that to be the same, because what often happens it automatically pushes it back out to 30 years.

And that’s a wrap from us. None of this information is specific financial advice, and you will need to reach out to a financial adviser for personalised recommendations!

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