What is mortgage refinancing?
Refinancing in simple terms is the process of switching banks and transferring your home loan from one bank to another bank to take advantage of more favourable terms and conditions.
Should I refinance my mortgage?
Reasons for refinancing a home loan are diverse but generally, you may be looking to achieve one of these objectives:
Secure a lower interest rate
When you believe your current bank is not giving you the lowest rate on your mortgage and playing hard ball, switching to a new bank can help you negotiate a lower interest rate. As the top mortgage broker with major NZ banks we understand which lender may go the extra mile for you. The interest savings are for you to keep, or simply use towards paying off more of the home loan itself!
Reduce interest charges through debt consolidation
If you have other debts such as outstanding credit cards, hire purchases, car loans or business loans, refinancing can provide the opportunity to streamline your debts and group any debts with a high interest rate into one lower home loan rate, reducing the overall interest and total monthly debt repayments you’re paying.
Access new home loan features
Depending on your personal circumstances, you may want to access bank products. These could be credit cards with home loan interest rates or offset facilities which combine the balances of your everyday accounts and subtracts these from the total owing on your mortgage to reduce the amount of interest you pay. If these products or features are not available at your current bank, switching to another bank can help you access these features so you can save money on interest repayments.
Avoid putting all your eggs in one basket
Rather than having your loan portfolio with just one bank, you may want to spread any risk by switching some of your loans to another bank.
Current Bank not giving good service
If you are not happy with the level of service from your current bank or personal banker then switching to a new bank gives you a chance to start over.
Your current bank has said NO!
You’ve asked your current bank for additional loan and they said NO! Why not try asking another bank? Each bank’s lending criteria is a little different and switching your existing home loan to another bank may help you secure the additional funding you need.
Avoid ongoing bank fees
Often, you will come to a point where your current bank no longer waives the ongoing monthly account maintenance fees and debit card fees. Switching to a new bank can help you avoid these fees as most banks these days waive such fees for an initial period of one to two years.
Pay off your home loan quicker (restructuring)
Having the right structure on your home loan may help you pay off the loan sooner than a bank’s standard 30-year loan term. If restructuring your existing home loan with your current bank is costing you, then switching to a new bank may help you will avoid these costs and may allow you to pay the home loan quicker, saving thousands of dollars in interest repayments over the terms of the loan.
Time to switch from non-bank lender to mainstream bank
You have been with a private lender for a while and you have grown tired of paying ongoing fees and high interest rates. Switching to a new bank can help you avoid these high interest rates and fees.
What are the costs involved in refinancing
It is important to weigh out the costs and the benefits of switching banks and ensure that the savings and benefits outweigh the costs. You may incur one or more of costs in the process of switching banks – some oh which are listed here.
- Early Repayment Cost
If you repay your loan before your loan is due for maturity as part of refinancing, your current bank may charge a break fee.
- Discharge FeeBanks may charge a discharge or admin fee to complete the paperwork involved in discharge of your home loan and transfer it over.
- Legal CostSwitching to the new bank will involve signing new loan documents in front of a solicitor and the solicitor will charge you for their services.
- Valuation CostThese days most banks do electronic valuation of properties but in some cases banks may ask you to get a physical valuation done which means using services of a registered valuer. These days most banks give cash contribution and legal fee contribution to ensure the cost of switching is minimum or negligible. Working out further savings which can be gained from lower interest rate and mortgage restructuring by consulting GFS can make you a believer and switcher.