Your home loan is a major financial commitment, so it makes sense to check from time to time whether your current mortgage still works for you.
Interest rates change. Your income may change. Your fixed-rate period may be coming to an end. You may also find that another lender has a loan structure that better suits your needs.
This is where refinancing and switching loans can become worth considering.
Refinancing means changing your existing home loan, which may involve moving to a different lender or changing the structure of your current lending. The right choice depends on your goals, costs and financial situation.
In this guide, we look at when switching your mortgage may make sense, what costs to consider and how to approach the process in New Zealand.
What Does Refinancing a Mortgage Mean?
Refinancing a mortgage generally means changing your existing home loan arrangement. You may refinance by:
- Moving your mortgage to another lender
- Changing the structure of your existing loan
- Negotiating a different interest rate
- Combining or restructuring loans
- Changing repayment arrangements
For some borrowers, refinancing can be about getting a more competitive interest rate. For others, it may be about flexibility, loan features or changing financial circumstances.
Before making a decision, it is important to compare the total cost of changing your mortgage rather than focusing only on the new interest rate.
When Should You Consider Switching Your Home Loan?
There is no single best time for every borrower. However, some situations can be a good reason to review your mortgage.
Your fixed-rate period is ending
If your mortgage is currently fixed, the end of the fixed term is a natural time to review your options. You may be able to negotiate a new rate with your existing lender or consider moving to another lender. Starting the process early gives you more time to compare your choices.
Another lender offers a more suitable deal
You may discover another lender offering an interest rate or loan structure that appears better suited to your needs. However, remember that the advertised rate is only one part of the calculation. You should also consider fees, cashback offers, break costs, loan features and any other costs associated with changing lenders.
Your financial situation has changed
Your income, expenses or financial goals may be different from when you originally took out your mortgage. For example, you may now have a higher income, have paid down some debt or want to change how your mortgage is structured. A review can help you see whether your current loan still fits your circumstances.
You want different loan features
Your current mortgage may not offer the features you now need. Depending on the lender, these may include:
- Offset accounts
- Revolving credit
- Flexible repayment options
- Different fixed-rate terms
- Additional repayment flexibility
The right features depend on how you manage your money and your financial goals.
Is Refinancing Always About Getting a Lower Interest Rate?
No.
A lower rate can be an important reason to refinance, but it should not be the only reason.
For example, a borrower might switch because another lender offers a loan structure that provides greater flexibility. Someone else may want to consolidate certain debts or restructure their lending.
The key question is: will changing the mortgage improve your overall financial position after all costs are considered?
A slightly lower interest rate may not save you money if switching involves significant costs.
What Does It Cost to Refinance?
One of the most important parts of refinance and switching loans is understanding the costs involved. Depending on your situation, costs could include:
- Early repayment or break costs
- Legal fees
- Valuation fees
- Loan application or establishment fees
- Discharge fees
- Other lender charges
Some lenders may offer incentives for borrowers who switch, such as cashback or contributions towards certain costs. However, you should look at the full financial picture rather than choosing a lender based only on an incentive.
What about mortgage broker cost?
Many borrowers also ask about mortgage broker cost when considering refinancing.
Broker fees vary depending on the broker, service and circumstances. Some mortgage advisers may receive commission from lenders, while others may charge clients directly for certain services.
Before proceeding, ask the broker how they are paid and whether you will have any fees to pay.
How Do You Compare Two Home Loans?
Comparing mortgages can be more complicated than comparing two interest rates. Start by looking at:
Interest rate
Check the proposed rate and how long it will apply.
Loan term
A longer loan term may reduce your regular repayments but could mean paying interest for longer.
Fees
Add up the costs involved in switching and compare them with the potential savings.
Loan features
Think about whether features such as offset accounts, revolving credit or flexible repayments are useful for you.
Cash contributions
Some lenders may offer a cash contribution when you switch. Check the conditions attached to any offer, including whether you need to stay with the lender for a certain period.
Break costs
If your current loan is fixed, ask your lender whether breaking the fixed term would involve a cost.
How Does the Refinancing Process Work?
The process can vary between lenders, but it commonly follows several steps.
Review your existing mortgage
Start by checking your current balance, interest rate, fixed-rate expiry date, loan term and repayment structure.Work out your goals
Decide what you want to achieve. Are you looking for a lower rate? More flexibility? A different loan structure? Or simply a better overall arrangement? Knowing your goal makes it easier to compare options.Compare available options
You can approach lenders yourself or speak with a mortgage broker NZ who can help you compare lending options. A broker may consider your circumstances and explain which lenders could potentially be suitable.Apply for the new loan
If you decide to switch, the new lender will generally assess your application. You may need to provide information about your income, expenses, assets, debts and current mortgage. Approval is not automatic, even if you already have a mortgage with another lender.Complete the switch
Once the new lending is approved and the required legal and lender steps are completed, the new loan can be used to repay the existing mortgage. Your new lender will provide information about your new repayments, loan structure and conditions.
Can a Mortgage Broker Help With Refinancing?
Yes. Mortgage broker services can be useful when you want to compare different mortgage options. A broker can help you:
- Review your current lending
- Understand your refinancing goals
- Compare potential lenders
- Discuss loan structures
- Estimate potential costs
- Prepare your application
- Communicate with lenders during the process
A broker may also be able to explain options you have not considered. However, it is still important to understand the recommendation and make sure the new loan suits your financial position.
When Might You Stay With Your Existing Lender?
Switching lenders is not always the best choice.
Your existing lender may offer a competitive rate or be willing to negotiate with you. Staying could also make sense if the costs of switching outweigh the expected savings.
For example, suppose changing lenders would save you $3,000 in interest over a period, but switching costs and other expenses total $3,500. In that situation, switching may not make financial sense.
This is why you should calculate the net benefit before making a decision.
What Should You Check Before Switching?
Before committing to a new mortgage, ask yourself:
- What am I trying to achieve?
- How much could I potentially save?
- What will switching cost?
- Is my current loan fixed?
- Are there break costs?
- Does the new lender offer useful features?
- Are there conditions attached to any cashback?
- Will my application meet the new lender's criteria?
- Does the new loan still suit my long-term plans?
Taking time to answer these questions can help you avoid making a decision based only on a headline interest rate.
How Capital Finance Can Help
Capital Finance is an independent mortgage adviser based in Papakura, Auckland, helping clients across New Zealand with home loans and other finance options.
If you are considering refinance and switching loans, Capital Finance can help you review your circumstances and explore potential lending options from a range of lenders.
The team works with major banks as well as non-bank lenders, which can give borrowers more options to consider. Capital Finance can also help with the application process and communicate with lenders on your behalf.
If your fixed-rate period is ending, your financial circumstances have changed or you simply want to know whether your current mortgage remains competitive, it may be worth having a conversation before making a decision.
Thinking about switching your home loan? Talk to Capital Finance to discuss your refinancing options and find out what may be available for your circumstances.
FAQ
What is refinancing and switching loans?
Refinancing and switching loans means changing your existing mortgage arrangement, which may involve moving your home loan to another lender or restructuring your current lending.
Is it worth switching mortgage lenders in New Zealand?
It can be, but it depends on your circumstances. You should compare the potential interest savings and loan benefits against break costs, legal fees, lender fees and other switching costs.
When is the best time to refinance a mortgage?
The end of a fixed-rate period is often a useful time to review your options. However, you can review your mortgage whenever your financial circumstances or goals change.
Does refinancing affect my credit?
Applying for new lending can involve credit checks and a new assessment by the lender. The effect on your credit profile depends on your circumstances and the lender's processes.
Can I refinance if I have a fixed-rate mortgage?
Potentially. However, breaking a fixed-rate loan before its expiry may result in an early repayment or break cost. Ask your current lender for the exact cost before deciding.
How much does it cost to refinance?
The cost varies. Possible expenses include break costs, legal fees, valuation fees, lender charges and other costs. Some lenders may offer contributions or incentives, but conditions can apply.
Can a mortgage broker help me switch lenders?
Yes. Mortgage broker services can include comparing potential lenders, discussing loan structures, helping prepare an application and assisting with communication during the refinancing process.
Should I refinance for a lower interest rate?
A lower rate can be helpful, but it should not be the only factor. Consider the total switching costs, loan features, term, fees, and your longer-term financial goals.
