Is it time to break up with your mortgage? A kiwi guide to refinancing

So, you and your mortgage have been together for a while now. You've made some great memories in your home, but lately something's been sitting at the back of your mind…

Could this be working better for you?

With interest rates doing a bit of a dance lately, you're not alone. Many Kiwi homeowners are giving their mortgages a second glance and asking the big question: should I refinance?

But what even is refinancing? And is it just a trendy buzzword, or could it actually save you some serious cash? Don't worry, we've got you. At Cooper, we're all about making the tricky stuff simple. So, let's dive into the world of mortgage refinancing, Kiwi-style.

First things first: Refix, Restructure, or Refinance?

You've probably heard these terms thrown around, and they're often used interchangeably. But they're actually quite different. Think of it like this:

Refixing: You're sticking with your current bank, just locking in a new interest rate for a set term. It's like renewing your vows.

Restructuring: You're still with your bank, but you're changing the way your loan is set up. Maybe you're switching from a fixed to a floating rate (or both), changing your payment frequency (or amount). It's like rearranging the furniture.

Refinancing: This is the big one. You're moving your entire mortgage to a new lender. It's like moving to a new house altogether.

This guide is all about refinancing, so let's get into the nitty-gritty.

Why Would You Refinance? (The Juicy Part)

Refinancing isn't just about chasing a lower interest rate (although that's a pretty great reason!). Here are some of the most common reasons why Kiwi homeowners decide to make the switch:

1. To Score a Better Interest Rate

This is the most obvious one. If you can get a significantly lower interest rate with a new lender, you could save a substantial amount of money over the life of your loan. With the Official Cash Rate (OCR) sitting at 2.25% and mortgage rates hovering around 5%, even a small reduction can make a big difference to your monthly payments.

2. To Get a Cash-Back Bonus

To win your business, banks will often offer a cash payment when you bring your mortgage to them (generally somewhere between .5% - 1% of the loan amount) however we have recently seen offers as high as 1.5%!

On a $500,000 mortgage, that's $7,500 in your pocket. This cash can cover your refinancing costs and leave you ahead from day one.

3. To Change Your Loan Term

Life changes, and so do your financial goals. Maybe you want to pay off your mortgage faster and you can afford to make higher repayments. Or perhaps you need a bit more breathing room in your budget and want to extend your loan term. Refinancing can give you the flexibility to do either.

4. To Consolidate Debt

Got a few high-interest debts hanging around, like credit cards or personal loans? A cash-out refinance could be a smart move. This is where you borrow more than you currently owe on your mortgage and use the extra cash to pay off your other debts. The big advantage here is that mortgage interest rates are usually much lower than other types of debt.

5. To Fund Renovations

Dreaming of a new kitchen or a bathroom that doesn't look like it's from the 70s? A cash-out refinance can also be used to fund home improvements. It's often a cheaper way to borrow than a personal loan.

6. To Switch from a Floating to a Fixed Rate (or Vice Versa)

If you're on a floating rate and the uncertainty is keeping you up at night, refinancing to a fixed rate could give you some peace of mind. On the flip side, if you think interest rates are on a downward trend, you might want to switch from a fixed to a floating rate.

The Nitty-Gritty: How to Refinance in NZ

So, you've decided that refinancing might be for you. Here's a simplified, step-by-step guide to the process:

1. Talk to your Mortgage Adviser: They will walk you through your options, explain what's available, and help you understand if refinancing makes sense for your situation. They should do most of the heavy lifting for you.

2. Do Your Homework: Use our live rate comparison tool (and check your banking app) to see what's currently available in the market. Talk to your bank - Find out if they can offer you a better deal and ask them to provide you with a "break fee" in writing. This is the fee you'll have to pay if you break your fixed-rate mortgage early.

3. Crunch the Numbers: Add up all the potential costs of refinancing and compare them to the potential savings. Our refinance calculator can help with this!

4. Apply for Your New Loan: Once you've chosen a new lender, you'll need to go through the application process. Your adviser will help you with this. This will involve providing proof of your income, assets, and employment (or your adviser may already have this on file).

What to Consider: Refinancing Costs

When you refinance, there are some costs to factor in. Here's what to expect:

Legal Fees: You'll need a solicitor to handle the legal side of things.

Break Fees: As we mentioned, you'll have to pay a fee if you break your fixed-rate mortgage early.

Valuation Fees: Your new lender could require a new valuation of your property.

Application Fees: Some lenders charge an application fee, although many will waive this to get your business.

So, Is It Worth It?

This is the million-dollar question (or, you know, the several-hundred-thousand-dollar question). The answer depends on your individual circumstances. A good rule of thumb is to calculate your "break-even point".

Here's how you do it:

Total Refinancing Costs ÷ Monthly Savings = Months to Break Even

For example, if your refinancing costs are $5,000 and you'll be saving $200 a month, it will take you 25 months to break even. If you're planning on staying in your home for longer than that, then refinancing could be a great move.

Note: These calculations do not take into account a likely cash-back from your new lender that may just cover your refinancing fees.

Calculate your refinance savings 👉🏼

The Bottom Line

Refinancing can be a powerful tool for Kiwi homeowners, but it's not a decision to be taken lightly. It's all about weighing up the costs and benefits and making sure it aligns with your financial goals.

If you're feeling a bit overwhelmed, don't worry. That's what we're here for. Book a free, no-obligation call with one of our friendly Cooper mortgage advisers today, and let's chat about whether refinancing is the right move for you.

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