Refinancing your mortgage-moving your home loan from one bank to another-can save you thousands of dollars over the life of your loan. But timing matters. Here's how to know when refinancing makes sense and when you're better off staying put.
Refinancing vs Refixing: Understanding the Difference
Before diving in, let's clarify the distinction. These terms are often confused but represent very different actions.
Refixing means locking in a new interest rate with your current bank when your fixed term expires. There's no application, no legal work, and no fees-you simply choose your next rate and term.
Refinancing means moving your entire mortgage to a different bank. This involves a full application, property valuation, legal work, and potentially break fees if you're leaving a fixed term early.
For most borrowers approaching a rate expiry, refixing is the simpler option. But refinancing becomes attractive when there's a meaningful benefit from switching banks entirely.
When Refinancing Makes Sense
1. Better Rates Elsewhere
The most common reason to refinance is finding a significantly better rate at another bank. In New Zealand's competitive mortgage market, rate differences between banks can be substantial-sometimes 0.3-0.5% or more.
Do the maths:
On a $600,000 mortgage, a 0.4% rate difference equals $2,400/year in interest savings. Over five years, that's $12,000-well worth the refinancing costs for most borrowers.
Use our mortgage repayment calculator to compare different rate scenarios.
2. Cash Contributions from Banks
Banks actively compete for mortgage customers. To attract borrowers, many offer cash contributions toward refinancing costs-typically $2,000-5,000 depending on loan size and bank policies.
These contributions can offset:
- •Legal fees ($800-1,500)
- •Valuation costs ($500-800)
- •Discharge fees from your current bank ($100-300)
When a new bank offers to cover your switching costs, the barriers to refinancing drop significantly.
3. Your Current Bank Won't Negotiate
Banks are more willing to negotiate with existing customers than many people realise. Before refinancing, ask your current bank if they'll match competitor rates or offer better terms.
If your current bank won't budge while competitors offer meaningfully better rates, refinancing becomes attractive. A mortgage adviser can help negotiate on your behalf-banks often offer rates to advisers that aren't publicly advertised.
4. You Want to Access Equity
If your property has increased in value, refinancing lets you access that equity for:
- •Home renovations or improvements
- •Investment property deposits
- •Debt consolidation
- •Other major expenses
Use our LVR calculator to see how much equity you might have available. Most banks allow lending up to 80% LVR, so if your property is now worth more than when you bought it, you may have borrowing capacity you didn't have before.
5. Your Circumstances Have Changed
Life changes can make refinancing beneficial:
Income increase: Higher income means you might qualify for better rates or loan structures at a new bank.
Debt reduction: If you've paid off other debts since your original mortgage, your serviceability has improved-potentially unlocking better terms.
Credit improvement: Banks assess risk differently. If your credit profile has improved, a different bank might offer better rates than your current lender would.
Relationship changes: Separating couples may need to refinance to remove a partner from the mortgage.
6. Your Fixed Term Is Ending Anyway
The ideal time to consider refinancing is when your fixed term is about to expire. You can switch banks without break fees, compare rates across the market, and take advantage of cash contributions.
Start the conversation with a mortgage adviser 2-3 months before your fixed term ends. This gives enough time to complete the refinancing process without rushing.
When NOT to Refinance
1. You're Locked into a Fixed Rate with Substantial Time Remaining
Breaking a fixed-rate mortgage early triggers break fees. These can be thousands or even tens of thousands of dollars, depending on your loan size and how rates have moved since you fixed.
Calculate your potential break costs before assuming refinancing is worthwhile. Sometimes the break fee exceeds any savings you'd gain from a lower rate.
2. The Savings Are Marginal
Refinancing involves time, paperwork, and some stress. If the rate difference is minimal (say, 0.1%), the hassle may not be worth it-especially for smaller loan amounts.
Rule of thumb: For refinancing to be worthwhile, aim for savings of at least $1,500-2,000/year after accounting for any costs not covered by bank contributions.
3. Your Circumstances Have Worsened
If your income has dropped, your debts have increased, or your property value has declined, you might not qualify for the same terms at a new bank. In these situations, staying with your current bank-who already has a relationship with you-is often the safer option.
4. You're Planning to Sell Soon
If you expect to sell your property within 1-2 years, refinancing costs may not be recovered before you exit the mortgage entirely. The transaction costs aren't worth it for a short-term loan.
The Refinancing Process in New Zealand
Understanding what's involved helps you plan appropriately.
Step 1: Calculate the Opportunity (Week 1)
Get clear on the potential benefit. Compare your current rate against what's available elsewhere. Factor in cash contributions, break fees (if applicable), and refinancing costs.
Step 2: Talk to a Mortgage Adviser (Week 1-2)
A mortgage adviser can access rates from multiple banks and negotiate on your behalf. They'll assess your situation and identify which bank offers the best overall package.
Step 3: Full Application (Week 2-3)
Submit a full mortgage application to the new bank, including income documentation, asset statements, and debt information. This is similar to your original mortgage application.
Step 4: Property Valuation (Week 3-4)
The new bank will require a valuation of your property. This can be a desktop valuation (based on data), a drive-by, or a full in-person valuation depending on the loan amount and LVR.
Step 5: Approval and Legal Work (Week 4-6)
Once approved, lawyers handle the transfer. Your new bank pays out your old mortgage, and the new mortgage is registered against your property title.
Step 6: Settlement
The switch is complete. Your new payment schedule begins, and you're done with your old bank.
Total timeline: Typically 4-8 weeks from decision to completion.
How to Decide: The Break-Even Calculation
Use this framework to assess whether refinancing is worthwhile:
1. Calculate annual savings
(Current rate - New rate) × Loan balance = Annual interest savings
2. Calculate total costs
Break fees (if any) + Legal fees + Valuation - Bank cash contribution = Net refinancing cost
3. Calculate break-even period
Net refinancing cost ÷ Annual savings = Years to break even
Example:
- •$500,000 loan, current rate 6.5%, new rate 6.0%
- •Annual savings: 0.5% × $500,000 = $2,500
- •Legal: $1,200, Valuation: $600, Cash contribution: $3,000
- •Net cost: $1,200 + $600 - $3,000 = -$1,200 (you're ahead from day one)
In this example, the bank contribution more than covers costs, so refinancing is a clear win.
Your Next Steps
The right refinancing move can save you thousands. The wrong one can cost you in break fees and hassle. Do your homework, get professional advice, and time your switch strategically.
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