Could refinancing help ease your budget pressure?

Could refinancing help ease your budget pressure?

Inflation may have steadied, but costs are still climbing for many – particularly homeowners. So, for any actions that put cash back in your pocket, the response is likely ‘yes, please!’

Since mid-2024, interest rates have been trending down, thanks to the Reserve Bank’s recent Official Cash Rate (OCR) cuts. This has seen the rise of refinancing amongst mortgage holders around the country, driven by the possibility of a better deal and potential cashback offer.

With many Kiwis now exploring whether this opportunity is right for them, read on to find out more about what refinancing entails, the pros and cons, and how to get the ball rolling.

What is refinancing?

First off, it’s important to know what refinancing means. It’s not simply locking in a new interest rate – you are replacing your current mortgage with a completely new loan with a new lender.

Why do it?

There are a variety of reasons homeowners look into refinancing, but in our experience it’s the cashback incentive offered by lenders that’s the real drawcard.

Understandably, homeowners generally have plans in mind for their cashback. Whether it’s financing a renovation, obtaining extra funds for a much-needed holiday, or sorting capital for another asset purchase, a lump sum cash payment can go a long way to helping people achieve their money goals.

Speaking of goals, the refinancing process can be a great opportunity to investigate a new loan structure that might better suit people’s current financial position. As part of this research, it’s worth considering if another loan product might be a better fit, such as an offset account or revolving credit.

Given the recent interest rate drops, refinancing can also enable homeowners to take advantage of declining rates earlier, rather than wait out their current fixed term.

In addition, if you fall into that earlier camp of budgeting for a renovation, it could be worthwhile looking into the special loan pricing banks are providing to make your home warmer and more energy efficient. Often called good energy, sustainable energy or greater choices loans, most major banks are offering 1% interest over three years, and some also include loans for EV cars.

What’s involved?

If you decide to explore your mortgage options, the most important stage is evaluating whether refinancing is in fact the right move for your situation.

Our team can help take you through this step-by-step process, where we look at all the numbers involved to understand what benefits you might receive:

1.       Your current interest rate vs. what is on offer from different lenders.

2.       Break fees charged by your current lender.

3.       Solicitor fees to get the mortgage changed – we find this usually sits around $1,200 to $1,500.

4.       Other costs that may or may not apply include having to repay cash incentives, sort a new valuation, and any application fees.

Next, let’s revisit those cashbacks, which banks put forward to compete for your custom. The amount of cash you could be offered depends on the amount of lending – with cashback rates sitting around 0.8% – 0.9% of the total loan, a lower level of lending e.g. $200,000 may not be worth going through the refinancing process.

Once you’ve gone through each of these steps and reviewed the numbers, our team can help you make the judgement call on whether to proceed with refinancing.

To refinance or simply refix – that is the question

Whether you decide to investigate refinancing your mortgage, or simply decide to refix with your current lender, here’s a couple of last tips from us.

First, remember that in most instances, banks often won’t provide you with any financial advice, so you may be left alone when deciding which option to take – that’s why having a good mortgage broker in your corner is so important. Second, if you decide to refix rather than refinance, it’s worth pushing for a rate discount, or asking our team to look into new rates for you. While the rates offered online or via your banking app are often the best, we always advise reaching out to us so we can do a quick check.

To ensure your mortgage is still delivering for you, we also recommend all our clients book in for an annual home loan check-up. At the end of the day, none of us want to be paying more than we need to, so let’s work together to see if there are some savings to be made!

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