Refinancing Your Mortgage in New Zealand
Refinancing your mortgage is the process of switching your mortgage to another bank or lender. Read our guide to why, when, and how to refinance your mortgage.
Currently, banks are offering cashbacks of up to 1% of the loan amount – this is free money and is paid into your bank account. And this is non-taxable. With interest rates increasing, it could be worth locking in a low rate now with a new bank.
You may want to consider refinancing your mortgage to decrease your repayments and improve your cashflow. This can be achieved through re-structuring your home loan at the same time. Other common reasons to refinance your home loan include to consolidate high-interest consumer debt, top-up for renovations or purchase a car or boat. Often we refinance for the deposit for or an investment property purchase to utilise split banking and the useable equity in your home, or to add a revolving credit home loan when we are implementing an Accelerated Payment Plan for our clients.
There are several things to consider besides the size of the cashback and interest rate you will pay. These include legal costs and the timeframe, as well as what a change in loan structure will mean for your situation and financial goals. We have advanced financial modelling software that can show you the long-term (to age 100!) effects of any changes to your financial situation and how to be mortgage-free sooner – even if you increase your home loan!
Will I Get a Cashback?
Banks have been offering cashbacks for several years, and recently increased these to 1% of the loan amount. For a $1,000,000 loan that is $10,000 to you for moving banks. If your loan-to-value ratio (LVR) is 80% or less, we will quickly tell you whether you are eligible to receive a cashback from the new bank.
To calculate your LVR, divide your total mortgage balance (in this case $750,000) by your homes’ value ($1,000,000) and times by 100.
In this example the cashback would be $7,500 with the current offers available.
What will my New Mortgage Repayments Be?
We all know that interest rates have increased significantly with 12 consecutive hikes to the official cash rate (OCR). When will rates decrease again? Banks expect to be able to start lowering interest rates by the end of 2023 or early 2024, if the Reserve Bank pauses their OCR increases. This is only a prediction – the accurate answer is that no-one knows. Economic commentary tells us that over half of New Zealander’s mortgages will be rolling onto higher interest rates, meaning an increase in monthly repayments in the midst of a cost-of-living crisis. This means you may not be able to avoid re-fixing your mortgage onto a rate that starts with a ‘6’. Why not limit the monthly increase by taking a cashback currently on offer?
To check your repayments use our mortgage calculator. Insert a few examples to show the difference between your current home loan rate and one of the rates on offer.
The example within the table below is based on mortgage balances of $650,000 and $900,000, with a cashback included. This is one strategy to take advantage of the banks’ offering cashback.
Our example shows how the cashback reduces the increase in your outgoings to $463 and $642 per month. Without a cashback, the increase would be $1,005 and $1,392 per month.
What About Low Interest Clean Energy or ‘Green’ Loans?
Several banks have recently introduced clean energy or ‘green’ loans, where they’ll lend up to $80,000 at 1.00% interest rate (for 3 years) as a home loan top-up. You can then use the loan to buy an electric or hybrid car, install double glazing, insulation, or solar panels on your home – which could save you money on electricity and fuel. We can assist you if you are interested in a green loan and determine whether your existing bank or a new bank is the right option.
New Bank versus Existing Bank.
Your current bank can’t tell you whether refinancing or a loan restructure is right for you – only an Adviser can do this. We will negotiate with your current bank on your behalf if you decide to continue banking with them or are unable to refinance at this time. If you stay with your current bank, you won’t need a lawyer. If you decide that staying with your existing bank is right for you now, we will review your home loan to see if it is working for you.
7 Key Things to Know About Refinancing:
- You can’t get a cashback from your existing bank. We can discuss restructuring your mortgage however, this can achieve an improvement in your cashflow, especially when we analyse your expenditure and offer our advice on how to reach your financial goals sooner.
- Will there be a break cost to refinance a fixed loan early? Generally, not if you are moving to a higher rate – the banks are nice like this. Meta Financial Solutions will calculate the cost of refinancing for you, using our ‘Break Fee Calculator’ if there is a cost.
- You will incur legal costs by switching banks, it is safe to assume these will be around $1,000. Talk to us if your lawyer has quoted you significantly more than this.
- If your personal situation has changed from when you first took out your mortgage, it may be difficult to pass the loan repayment calculations with a new bank (even with your existing bank). We can assist if you have started a family or a business or decreased your working hours for example.
- You may have to repay any previous cashbacks or Adviser commission if you refinance within 24-48 months. Have a chat with Meta Financial Solutions if you think this may apply.
- Refinancing may not be beneficial if you are fixed on a low rate for a little while longer. Remember back in 2021 when interest rates were 2.99% for five years? Moving to a rate of 6.50% probably won’t work for you now as you can stay on this lower rate until it expires. Have a chat with us, as we can calculate the difference from increasing your interest rate and extending your loan term – sometimes the difference in repayments is marginal.
- For every new customer that we help refinance we donate to Trees that Count. This ensures future generations of New Zealander’s will be able to enjoy our beautiful country.
Why consult a Mortgage Adviser when Refinancing?
It’s a service free to you. Often we can give you access to better interest rates than those publicly advertised or those offered to you direct. We will show you how to be mortgage-free sooner and save on loan interest. We will model your financial situation to age 100 to make sure you are going to get ahead by switching banks. We know the process and what is on offer from all the banks and (non-banks) at the time.
Every customer’s situation is different so we provide you with an individual plan in keeping with our ‘clients for life’ philosophy that is simple to understand and discuss when we next meet.
Book a time to meet today if you’re ready to talk about refinancing.
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