What It Means to Refinance a Mortgage

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Thinking of refinancing your mortgage and not sure where to start? Our article will give you everything you need to know about mortgage refinancing or home loan refinancing in New Zealand.

What is refinancing a mortgage?

Dib-u-maalgelinta macneheedu waxa weeye inaad amaah-bixiyuhu ka qaadanayso amaah-bixiye kale. Tani waxay ka dhigan tahay inaad ka socoto hal bangi, ama amaahiye kale, oo aad u socoto mid kale. Markaad tan sameyso, waxaad si dhab ah u bixineysaa deyntaada amaah-bixiyahaaga, oo aad amaah cusub ku qaadaneyso mid cusub.

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 buy a home to when they are reviewing their mortgage or home loan and their budget. Every decision you make should be in the best interest of your financial future and ensure that you continue to build your empire.

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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 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 main thing that we see a lot of people lacking is: you have to contact a lawyer to refinance with another lender. You can’t easily make the change, because your bank will need to insure the new property.

Make sure the loan term is what you want. For example, if you are in a bank for 25 years and you want it to continue the same, because what usually happens is that it is automatically delayed for 30 years.

And that’s our wrapper. None of this information is specific financial advice and you should consult a financial adviser for specific advice!

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