Could Refinancing Your Home Loan Bring Your Interest Rate Down?

If you’re wanting to reduce your mortgage interest rates to save yourself money, then refinancing a could be a very good strategic move. Mortgage Refinancing involves taking out a new home loan to pay off your existing one and there are many valid reasons for wanting to do so. However, the question is: should you refinance your mortgage and is there a right time for you? So, we asked Aseem Agarwal, Head of Mortgages at Global Finance for advice on the whole refinancing question.

He began by telling us, in no uncertain terms, that before making financial decisions that big, and signing on any dotted lines, you need to figure out whether refinancing is a good option for you and your financial situation. And the best way to do this, he told us, was to make use of experienced experts, such as the mortgage brokers at Global Finance. “We can help you determine how and when refinancing your mortgage is right for you”.

Refinancing has both costs and benefits

Restructuring your home loan with a new bank might allow you to pay off your loan sooner than the standard 30-year term. This can save you thousands of dollars in interest repayments over the life of the loan. However, there is more to a mortgage than just the interest rate. A better interest rate is obviously a desirable thing, but it is only one piece of the puzzle. There is also a lot involved with switching lenders.

People refinance their mortgages for a range of reasons:

• Getting a more competitive home loan rate, which means lower monthly repayments
• Shifting from a floating to a fixed-term rate
• Shortening the terms of a loan, so you can be debt-free sooner
• Consolidating and streamlining any debts with a high interest rate, such as car loans, credit card debt, hire purchases, or business loans etc., into one lower home loan rate
• Cash-out so you can borrow money to make repairs, renovations or invest in a second house using the equity in your home.
• Accessing additional bank products to save money or provide flexibility, such as extra repayments at no cost, repayment holidays, redraw facilities, credit cards with home loan interest rates, offset facilities, lower account fees, or good support.

Securing a lower interest rate

The primary reason many homeowners refinance their mortgage is to secure a lower interest rate. When you initially took out your loan, your credit score, market conditions, or other factors might not have allowed you to get the best rate available. If your financial situation has improved or if market interest rates have dropped, refinancing can help you lock in a lower rate. This reduces your monthly repayments and decreases the total interest you will pay over the life of the loan, saving you a substantial amount of money.

Debt consolidation

Refinancing provides an opportunity to streamline multiple debts into one manageable payment. If you have high-interest debts such as credit cards, car loans, or business loans, consolidating them into a lower-interest home loan can significantly reduce your overall interest charges and monthly repayments.

Accessing more home loan features

Different banks offer various products that can help you save on interest. These include home loans with offset facilities, which combine the balances of your everyday accounts to reduce the amount of interest you pay on your mortgage. If your current bank doesn’t offer these features, switching to another bank could be beneficial.

Improved service

If you’re unhappy with the service from your current bank, refinancing gives you the chance to switch to a lender that values customer service more highly. Because the truth is, some lenders are better than others at looking after their customers when life throws a curve ball. As mortgage brokers experienced with all the major New Zealand banks, we understand which lenders may go the extra mile for you.

Avoiding ongoing bank fees

Switching banks can help you avoid monthly account maintenance and debit card fees, which can add up over time. Many banks waive these fees for new customers for an initial period, typically one to two years.

Get proactive about your refinancing options

The thing to remember though is that when interest rates go down or banks have better products on offer, your bank won’t automatically offer you the better deal. You need to shop around to get an idea of what’s available.

Refinancing is part of owning a home

Refinancing can be an opportunity to pay less in interest and get rid of your mortgage more quickly. Even if you’re only going to save $200 per month in interest cost it may be worth refinancing. A couple of hundred dollars may not sound that much when you’re looking at a mortgage of many hundreds of thousands over decades, but $200 every month over many months could well be worth it, particularly if you consider how long you expect to have your mortgage for.

Finding a more cost-effective mortgage that works for your goals and circumstances takes skill and an up-to-date understanding of the market and this is where Global Finance can help. We can advise on which lenders could save you in interest payments while providing the products that will best serve you.

Weighing the costs of refinancing

While the benefits of refinancing can be significant, it’s important to consider the associated costs:
– Early repayment cost: Your current bank may charge a break fee if you repay your loan early.
– Discharge fees: Banks may charge an admin fee for discharging your home loan and transferring it to another lender.
– Legal costs: Signing new loan documents with a solicitor incurs legal fees.
– Valuation costs: Some banks may require a property valuation, though many provide cash contributions to cover these costs.

Many banks give cash and legal fee contributions to reduce the cost of refinancing, but is that enough? Savings need to outweigh the costs and any benefits need to match your goals.

Finding a mortgage package that works in your interest

In order to make an informed decision and to make the transition to a new bank work for you, it’s important to understand the pros and cons. That’s where the Global Finance team really come into their own. We can help you make sure refinancing is a smart move.

We’ll look at the interest rate you’re currently on, the structure of your loan, your income and expenses as well as your near- to medium -term goals and we’ll present a mortgage package that works in your interest.

Then we’ll guide you through the application process so you can maximise your chances of a loan approval.

We’ll make sure you’re looking good

Just because you want to refinance doesn’t guarantee you a new mortgage. Each bank’s lending criteria is a little different and when changing your existing home loan, it is vital that you’ve got the paperwork to demonstrate your ability to repay it.

Your potential new lender will reassess your finances, including your debt-to-income ratio, any other debt and your spending patterns. Our mortgage advisers can help you get the right paperwork in place, and we’ll present and argue your case for you.

Refinancing your mortgage is not a decision to be made lightly

Refinancing can save you time and money. It can reduce your mortgage repayments or the term of the loan, help you to build equity or reduce high-interest debt. If your fixed-rate term is nearly up, if you’re looking to get a top-up on your mortgage, or you want a better rate or just better service, then we can help you get the right refinancing package.

If you’re considering refinancing, and want the brightest financial future you can get, seek expert help. Contact Global Finance to explore your refinancing options and get a solution tailored to your needs. Call the team on 09 255 5500 or email info@globalfinance.co.nz.

The information and articles published are true to the best of the Global Finance Services Ltd knowledge. Since the information provided in this blog is of general nature and is not intended to be personalized financial advice. We encourage you to seek Financial advice which is personalized depending on your needs, goals, and circumstances before making any financial decision. No person or persons who rely directly or indirectly upon information contained in this article may hold Global Financial Services Ltd or its employees liable.