Alongside the emotional impact of COVID-19, we’re likely to see far-reaching financial fallout. A turbulent economy and uncertain financial forecast have left many Kiwis unsure of what to do about their mortgages. But with interest loans at an astonishingly low rate, now could be the perfect time to refinance your loan. We’ve weighed the pros and cons, so you can decide if your mortgage is performing at its best.
What is refinancing?
Refinancing is when you take out another home loan to pay off your existing one. This allows you to take advantage of more favourable terms, pay down a chunk, take on more borrowing or restructure your loan. Refinancing nearly always involves swapping your loan from one bank to another, too.
If you’re thinking of mortgage refinancing, but aren’t sure where to start, a good first step is to get clear about your finances. Much like when you first applied for your mortgage, you’ll need to show you can comfortably cover the new loan. Before you begin, review your expectations and be clear with your intentions – what exactly do you want to achieve by refinancing? We’ve outlined some of the common reasons here:
Why consider refinancing?
Secure a lower interest rate
Switching to a new bank could help you negotiate a lower interest rate. This would reduce your monthly repayments or shorten your loan term. Either way, you’ll pay less interest overall. If your financial situation has changed due to COVID-19 or you already struggle to meet your repayments, securing a lower interest rate could be what you need.
Avoid ongoing bank fees
Monthly account maintenance and debit card fees are sometimes inevitable, but most banks waive such fees for the first year or two. What seems like an occasional small fee adds up to a large sum over the years, so switching to a new bank could help you avoid these charges.
Interest-only loan coming to an end
If you have an interest-only arrangement on an investment property loan that’s coming to an end, it’s likely your bank will be hesitant to renew it and your repayments will increase significantly. In some cases, an interest-only period can be extended for up to five years – work with an expert to negotiate and secure the best deal with a new provider, and ensure your repayments stay at the current rate.
Pay your loan off faster by restructuring
Want to pay your loan back faster than the original term plan? Shopping around with an expert to find a better offer may save you thousands of dollars in interest over the years. No one wants to have a loan any longer than necessary – restructuring your loan with a new lender could be the best path to financial freedom.
Avoid putting all your eggs in one basket
If you’re a property investor, spreading your portfolio across a range of banks can be a smart strategy. Doing so will lower your risk of putting all your debt with one lender, and you’ll also be able to use the most advantageous terms.
Switch from a non-bank lender to a mainstream bank
If your home loan is with a non-bank lender, you might be facing ongoing fees and higher interest rates than are offered by the banks. If your situation has changed – your credit score has improved, your income increase or debt reduced, for example – major banks may consider extending you a home loan. Switching to a bank may mean you can secure a better deal, reducing interest and fees.
You want to borrow more
Every bank has different lending criteria – if you’ve been declined an additional loan from your existing lender, it may be that another would be happy to make the deal. Working with an experienced mortgage broker could help you research the options and make transitioning to a new lender seamless.
Reduce interest charges through debt consolidation
If you’ve been struggling with consumer debt, like credit card debt, hire purchase or car loans, refinancing to bundle these onto your mortgage can be a smart move. With debt consolidation, you borrow a bit extra against your house and use that to pay down your other debts. This means you can pay off all your debts as part of your mortgage repayment, with little to no extra fees, and at much lower rates than a standard credit card.
Expert advice about refinancing your home loan
There’s a lot to think about when considering refinancing. Whatever your reason for doing so, it can be a great tool to get ahead of debt, reduce payments and pave the way to financial freedom. The best place to start is to talk to an expert – we’ll help you secure the best deals and ensure the most positive outcome for your future.
Ready to look at refinancing? Talk to Global Finance about your options and find a solution that works for you.