Your home loan may have been suitable when you first took it out, but is it still the right fit today?
Interest rates change. Your income, expenses and financial goals change. You may have built more equity, accumulated other debts or discovered that your current mortgage does not provide the flexibility you need.
Refinancing gives you an opportunity to review the entire loan (not just its interest rate) and decide whether you would be better off staying with your current lender, restructuring the mortgage or moving to another bank.
However, refinancing is not automatically a money-saving move. Break fees, legal costs, cashback repayments and a longer loan term can quickly reduce the apparent benefit. This is where working with a mortgage broker can help you compare the numbers before making a decision.
What Does It Mean to Refinance a Home Loan?
Refinancing means replacing your current home loan with a new lending arrangement. You may negotiate a new loan with your existing bank or move your mortgage to another lender.
The new loan could have:
- A different interest rate
- Lower or higher repayments
- A shorter or longer repayment term
- A different fixed or floating structure
- An offset or revolving credit facility
- Additional borrowing
- Other debts consolidated into the mortgage
Refinancing is different from simply refixing your home loan.
Refixing means choosing a new fixed interest rate with your current lender when your existing fixed period ends. Restructuring means changing how your lending is divided or repaid. Refinancing usually involves a more complete reassessment of the loan and may include switching lenders.
Before deciding which option is best, it is worth comparing all three.
Why Would You Refinance Your Mortgage?
There are several reasons New Zealand homeowners consider refinancing.
Get a Better Interest Rate
A lower interest rate can reduce your repayments and the amount of interest charged over time. Even a relatively small rate difference can become significant when it applies to a large mortgage balance.
However, the lowest advertised rate is not always the least expensive option. You also need to consider:
- Establishment and ongoing fees
- Break or early-repayment costs
- Legal and valuation expenses
- Cashback conditions
- Repayment flexibility
- The length of the new loan
- Whether you qualify for the advertised rate
A broker can compare the complete cost of each option rather than focusing on the headline rate.
Reduce Your Repayments
Moving to a lower rate or extending the loan term may reduce your weekly, fortnightly or monthly repayments.
This can provide breathing room in the household budget, but extending the mortgage can increase the total interest paid. Any repayment reduction should be considered alongside the long-term cost.
Pay the Mortgage Off Sooner
Refinancing can also be used to shorten the loan term.
If you secure a better rate and keep your repayments at their previous level, more of each payment may go towards reducing the principal. Depending on the loan structure, this could help you pay off the mortgage sooner and save interest.
Consolidate Higher-Interest Debt
Some homeowners refinance to consolidate credit cards, personal loans, vehicle finance or other debts into their mortgage.
This can provide:
- One repayment instead of several
- A lower interest rate
- Simpler household budgeting
- Reduced immediate repayments
Debt consolidation needs to be structured carefully. Moving a five-year personal loan onto a 20- or 30-year mortgage could mean paying interest on that debt for much longer. The debt also becomes secured against your home.
A mortgage adviser can help determine whether the consolidated amount should be placed in a separate loan portion with a shorter repayment period. It may also be sensible to close or reduce the limits on credit facilities that have been repaid.
The aim should be to eliminate the debt, as opposed to creating room to accumulate it again.
Access Equity in Your Home
Equity is the difference between your property’s current value and the amount secured against it.
Depending on your income, property value and lender criteria, refinancing may allow you to access some of this equity for:
- Renovations or major repairs
- An investment property deposit
- Education or family expenses
- Energy-efficiency improvements
- Another planned major purchase
Borrowing more is not the same as transferring the existing mortgage balance. The lender will need to assess whether you can afford the additional debt, and Reserve Bank lending restrictions may also apply.
Get More Useful Loan Features
The interest rate is only one part of a home loan.
You may want to refinance to obtain:
- An offset account
- Revolving credit
- More generous additional-repayment options
- A split fixed and floating mortgage
- Better online loan management
- A lender more suited to variable or self-employed income
The right features can help reduce interest and give you more control over the mortgage, provided you use them effectively.
Adapt to a Change in Circumstances
Refinancing may also be considered after:
- A significant increase or decrease in income
- Starting a business or becoming self-employed
- Separation or a change in property ownership
- Children leaving home
- Receiving an inheritance
- Removing a guarantor
- Combining finances with a partner
- Preparing for retirement
Removing a borrower or guarantor is not simply an administrative change. The remaining borrower will generally need to demonstrate that they can afford the loan independently.
When Is a Good Time to Refinance?
You can investigate refinancing at any time, but certain situations make it particularly worth reviewing.
Your Fixed Term Is Ending
The end of a fixed-rate period is often a convenient time to compare lenders because you may be able to switch without paying a fixed-rate break fee.
Consider beginning the review six to eight weeks before the fixed term expires. This gives your broker time to assess the options, prepare an application and coordinate any valuation or legal work.
Other Lenders Are Offering Better Overall Terms
Home-loan rates can change before or after an official cash rate announcement because banks also consider wholesale funding costs, competition, risk and their own lending appetite.
Rather than trying to predict the perfect time to switch, compare the measurable benefit available now.
Your Financial Position Has Improved
You may have more options if you have:
- Increased your income
- Reduced other debts
- Built more equity
- Maintained a strong repayment history
- Improved your overall financial position
This does not guarantee approval, but it may make you eligible for a wider range of lenders or loan structures.
Your Current Loan No Longer Supports Your Goals
A mortgage review can be worthwhile even when your rate is competitive. An offset facility, different repayment structure or shorter term could be more valuable than a small rate reduction.
How Much Does It Cost to Refinance a Mortgage?
There is no fixed cost to refinance a mortgage in New Zealand.
A straightforward switch may have little net upfront cost if the new lender contributes towards the expenses. A refinance involving a fixed-rate break, legal work, valuation and cashback repayment could cost several thousand dollars or more.
Potential costs include:
Fixed-Rate Break Fee
If you repay a fixed-rate loan before the fixed term ends, your existing lender may charge an early-repayment or break fee.
The amount depends on factors such as your current rate, remaining fixed period, loan balance and the lender’s cost of reinvesting the money. Ask your bank to provide the fee in writing because it can change.
Cashback Repayment
If your current bank gave you a cash contribution when the loan was established, you may have agreed to remain with that bank for a specified period. Leaving early may require you to repay some or all of the contribution, so it’s worth checking with your current lender first.
Legal Fees
When switching lenders, legal work is generally required to discharge the existing mortgage and register the new lender’s security over the property. Some lenders offer a refinancing service to eligible borrowers, but this is not available in every situation.
Property Valuation
The new lender may accept an automated valuation or request a registered valuation. This will depend on the property, available equity, loan amount and lender requirements.
Lender and Account Fees
Application, establishment, discharge and account fees may apply. Switching banks can also change the costs attached to transaction accounts, credit cards or banking packages.
Mortgage Adviser Fees
In most cases, mortgage advisers are paid a commission by the lender. Sometimes there may be fees you need to pay upfront. If this is the case, we will explain any fees and commission arrangements before you proceed. See our Disclosure Statement for details.
Calculate the Break-Even Point
Before refinancing, compare the net switching cost with the expected monthly saving. To calculate your break even period, divide the total refinancing costs by the monthly saving.
For example, if it will take two years for the savings to recover the switching costs but you expect to sell in 12 months, refinancing may not be worthwhile.
How to Refinance a Home Loan Step by Step
- Start with a clear objective. Decide what you want to achieve by refinancing your existing loan.
- Review your current mortgage
- Speak with a mortgage broker to discuss your goals.
- Prepare your documents such as payslips, other loans for consolidation, tax returns if self employed etc.
- Your mortgage broker will present options to you. Compare each option using the same mortgage balance and remaining repayment term.
- Apply and meet the lender’s conditions. Refinancing is a new credit application. Approval may be subject to conditions such as a valuation, repayment of other debts, confirmation of insurance or updated financial information.
- Complete settlement. The new lender advances the funds needed to repay the previous mortgage, the old lender’s security is discharged, and the new mortgage is registered against the property.
Can You Refinance With Less Than 20% Equity?
Refinancing with less than 20% equity may be possible, but your options can be more limited.
Under current Reserve Bank loan to value rules, refinancing an existing mortgage without increasing the loan amount may be treated differently from new borrowing or a top-up. However, lenders still apply their own equity, affordability, credit and property requirements.
Having less than 20% equity may also affect the rates or products available to you.
A broker can estimate your current loan-to-value ratio and identify which lenders may consider the application before you incur valuation or application costs.
When Might Refinancing Not Be Worth It?
Refinancing may not be the best option when:
- Break fees outweigh the likely savings
- You must repay a substantial cashback
- You expect to sell soon
- Your property value has reduced
- Your financial position no longer meets lender criteria
- The new loan extends the debt for significantly longer
- Your existing lender will provide a competitive alternative
- You are focusing on an incentive rather than the loan’s total cost
Sometimes a refinance review confirms that switching is worthwhile. In other cases, restructuring or negotiating with the current lender produces a better result.
How Can a Mortgage Broker Help?
A mortgage broker can help you determine whether refinancing makes financial sense before you commit to an application.
Your adviser can:
- Compare your existing loan with suitable alternatives
- Explain the costs and potential savings
- Assess likely lender eligibility
- Recommend an appropriate loan structure
- Negotiate with lenders
- Prepare and manage the application
- Coordinate with the lender and valuer
- Review the mortgage again when circumstances change
A good refinancing recommendation should explain why a particular option suits your objectives. The Financial Advice Code requires regulated advice to be provided with the care, diligence and skill that a prudent adviser would exercise. Advisers must explain the nature and scope of their advice, including limitations on the lenders they consider. We must also disclose relevant commissions, incentives, fees, conflicts and potential clawbacks so you can make an informed decision.
Frequently Asked Questions
When can you refinance a home loan?
You can apply to refinance at any time. However, refinancing near the end of a fixed term may help you avoid an early-repayment fee. Starting the review six to eight weeks before the fixed period ends generally provides enough time to compare and apply.
How often can you refinance?
There is generally no set limit on how often you can refinance in New Zealand. However, each refinance involves a new application and may generate fees, and credit enquiries. Reviewing your mortgage regularly does not mean you need to switch lenders every time.
How long does refinancing take?
A straightforward refinance may take around two to four weeks. More complex applications can take longer, particularly where a registered valuation, self-employed income assessment or additional legal work is required.
Why would you refinance a home loan?
Common reasons include obtaining a better interest rate, reducing repayments, paying the mortgage off sooner, consolidating debt, accessing equity or obtaining more useful loan features.
Can you refinance a fixed-rate mortgage?
Yes, but your existing lender may charge a break fee if you repay the loan before the fixed term ends. Obtain the fee in writing and include it in your cost comparison.
Is it better to refix or refinance?
Refixing can be simpler and may avoid switching costs. Refinancing may offer a better rate, structure or features. The best option depends on the total financial benefit and how well each loan supports your goals.
Does refinancing affect your credit score?
A lender will check your credit history when assessing a refinance application. Repeated applications can create multiple credit enquiries, which is one reason to assess lender suitability before applying.
Can I refinance to consolidate debt?
Yes, subject to lender approval, affordability and available equity. Make sure the consolidated debt is not stretched over the full mortgage term without considering the additional interest and risk. For example, adding on a $10,000 car loan and not paying any extra means you’ll pay extra interest over the 25-30 year mortgage vs keeping the car loan and paying it off in 3-5 years.
Find Out Whether Refinancing Is Worth It
Refinancing can help you reduce interest, improve your loan structure or bring several debts under control. It can also cost more than expected if the fees and long-term consequences are not considered carefully.
The first step is not applying for another mortgage. It is understanding what you have now, what you want to achieve and whether another option leaves you genuinely better off.
Speak with one of our mortgage advisers for a personalised home-loan review.
This article provides general information only and does not constitute personalised financial advice. Interest rates, lender policies and regulatory requirements can change. Any recommendation should take your individual circumstances into account.
