Should I Refinance My Mortgage? A NZ Homeowner’s Guide to Staying, Switching and Restructuring

If you’ve had your mortgage for a few years, your circumstances — and the lending market — may look quite different from when you first took it out.

That doesn’t automatically mean you should switch banks. Sometimes refinancing is the right move. Sometimes restructuring your mortgage with your existing lender achieves exactly what you need.

The important thing is comparing the whole deal, not just chasing the lowest advertised rate.

What is refinancing?

Refinancing generally means moving your mortgage from one lender to another.

People refinance for all sorts of reasons, including:

• getting a more competitive interest rate
• changing the way their mortgage is structured
• consolidating higher-interest debt
• accessing equity for renovations or another property
• improving cashflow
• getting lending features that better suit the way they manage their money
• moving away from a lender that no longer suits their circumstances

But refinancing isn’t always necessary.

Sometimes the better option is to stay with your existing bank and restructure the lending instead.

Refinancing vs restructuring — what’s the difference?

A restructure changes how your mortgage works without necessarily changing lender.

That might mean:

• splitting lending across different fixed terms
• moving part of the mortgage to floating
• adding an offset or revolving credit facility
• changing repayment amounts or frequency
• shortening or extending the loan term
• consolidating other debts
• separating lending for different purposes

For many homeowners, the real question isn’t simply “Should I change banks?”

It’s:

“Is my current mortgage still set up in the best way for what I’m trying to achieve?”

When can refinancing make sense?

Your current lender is no longer competitive

Rates are important, but they’re only one part of the equation.

Another lender may offer a better combination of pricing, cashback, features or structure. On a large mortgage, even relatively small differences can add up.

The key is working out whether the benefit remains after all the costs of moving are taken into account.

You want to restructure your debt

Your financial situation might have changed since the mortgage was originally set up.

Maybe your income has increased. Perhaps you now keep more cash in savings. You might want to repay the mortgage faster or create more flexibility around irregular income.

A different structure can sometimes make more difference over time than simply securing a slightly lower rate.

You want to consolidate debt

Home-loan interest rates are normally much lower than the rates charged on credit cards, personal loans and vehicle finance.

Rolling those debts into a mortgage can reduce the immediate interest cost and lower your monthly commitments.

But there’s an important catch.

Turning a five-year car loan or credit-card balance into debt repaid over 20 or 30 years can mean paying interest on it for much longer.

Debt consolidation works best when the repayment strategy is considered alongside the lower interest rate.

You want to access equity

As you repay your mortgage or your property increases in value, you may build equity that can potentially be used for another purpose.

That could include:

• renovations
• purchasing an investment property
• helping children into their first home
• other major expenditure

Whether this makes sense depends on your equity, servicing position and the purpose of the additional borrowing.

Before switching banks, compare staying as well

This is an important step that often gets overlooked.

Before refinancing, we think you should understand both options:

What can your current lender do if you stay?

versus

What do you gain by moving elsewhere?

A good comparison should consider more than the headline interest rate.

We look at things such as:

• interest rates
• cashback
• break costs
• any cashback repayment obligation with your existing lender
• legal and valuation costs
• loan features
• overall loan structure
• repayment flexibility
• how long you expect to keep the lending
• the longer-term dollar impact

Sometimes switching is clearly worthwhile.

Sometimes the numbers show that staying put and negotiating or restructuring is the better move.

What are the costs of refinancing?

Depending on your situation, these can include:

Break costs

If you’re part-way through a fixed-rate period, your existing lender may charge an early repayment cost.

The amount can vary considerably, so it needs to be checked before making a decision.

Cashback repayment

If your existing lender paid you a cashback when your mortgage was arranged or last refinanced, part of it may need to be repaid if you leave within the agreed period.

Legal costs

Moving lenders normally requires legal work because the mortgage security needs to move from one bank to another.

Valuation costs

In some cases the new lender may require a registered valuation.

The cost of the new structure

A refinance that produces a lower monthly repayment isn’t necessarily cheaper overall.

Extending the loan term, for example, can reduce repayments today while increasing the total interest paid over the life of the mortgage.

Is the lowest mortgage rate always the best option?

Not necessarily.

The cheapest rate today can be less valuable if the structure around it doesn’t suit you.

For example, someone with significant savings might benefit from an offset facility. Someone with variable income may value a structure that lets them make larger repayments when cashflow allows.

Others might benefit from splitting the mortgage across different fixed periods rather than having the entire loan roll over at once.

The goal should be a mortgage that works for your circumstances — not simply the smallest number on a rate sheet.

How EasyStreet approaches refinancing

We start by understanding what you actually want the mortgage to do.

Then we can look at what your current lender can offer and compare that with realistic alternatives across the lenders we work with.

That might mean refinancing.

It might mean restructuring with your existing bank.

Or it might mean doing nothing for now.

If moving lenders does make sense, we can manage the process from application through to approval and help coordinate the changeover.

Is it worth reviewing my mortgage even if I’m not ready to switch?

Absolutely.

A mortgage review doesn’t need to result in a refinance.

It can simply confirm whether your rate, repayments and structure still make sense for where you are now and what you want to do next.

And if there isn’t enough benefit in changing anything, we’ll tell you that too.

Thinking about refinancing or restructuring?

If your mortgage has been sitting in the same structure for a while, you’re coming up to a fixed-rate expiry, or your circumstances have changed, it’s worth checking your options.

Talk to EasyStreet and we’ll help you compare staying, switching and restructuring — so you can make the move that actually leaves you better off

‍