When Should You Consider Refinancing Your Mortgage?

Word “Refinance” on wooden block with calculator in the background

23 Jan When Should You Consider Refinancing Your Mortgage?

Refinancing your mortgage is a strategic decision that could save you money, provide greater financial flexibility, and help you reach certain financial goals. Before deciding to refinance, it’s important to understand when it makes sense to do so, what to consider, and how to navigate the refinancing process in New Zealand. Read on as we provide answers to some of the frequently asked questions about mortgage refinancing.

When does mortgage refinancing make sense?

When timed right, mortgage refinancing offers significant benefits for homeowners. Benefits such as reduced mortgage repayments, more favourable interest rates, or the ability to further invest in property. As interest rates fluctuate, financial situations change, or home ownership goals evolve, it can make sense to refinance a mortgage to take advantage of the opportunities presented at the time.

Here are some of the situations where mortgage refinancing might be right for you:

  • Lower interest rates. If current interest rates are lower than the interest rate on your existing mortgage, refinancing could lead to lower mortgage repayments and significant long-term savings.
  • An increase in earnings. If your income goes up because you’ve started a new job or got a promotion, refinancing to shorten the loan term of your mortgage and make higher repayments could shave months or even years off your loan term and save you thousands of dollars in interest.
  • Change in financial situation. If you’re struggling to meet your current repayments, refinancing to a longer loan term would give you the option of making smaller repayments over a longer time. But you’ll also pay more interest over time with a longer loan term. In addition, if you’re juggling multiple high-interest debts, such as credit card debts, refinancing to consolidate these debts into your home loan can be a strategic move to regain control over your finances. By rolling your other debts into your mortgage, you simplify your repayments into one regular repayment and can leverage the benefits of mortgage interest rates. Give us a call on 0800 ASK MAX (0800 275 629) and talk to one of our experienced Mortgage Advisers to gain insights into your mortgage options!
  • Home equity growth. If your home’s value has increased and it’s worth more, refinancing to access the equity could free up cash for you to use how you choose – whether that’s a family holiday, a home renovation project, or medical treatment. However, in the case of urgent medical needs, it’s advisable to consider other financial options, such as an emergency loan, to address unforeseen expenses. An emergency loan is a type of personal loan, and usually offers a quick turnaround, ensuring you access the necessary funds promptly.
  • Switching loan types. If your financial goals or preferences have changed and you’re considering switching loan types – whether that’s to a fixed rate loan or a variable rate loan – refinancing could help align your mortgage with your financial strategy.

What should I think about before refinancing?

Before deciding to refinance your mortgage, here are some things to consider:

  • Interest rates. Compare current interest rates with your mortgage interest rate to determine if you would save by refinancing.
  • Loan terms. Consider how long your new loan term would be. Lengthening or shortening your loan term will affect your mortgage repayments.
  • Refinancing costs. Check that any potential savings outweigh the cost of refinancing. Typically, refinancing costs include break fees, legal fees, valuation fees and other administrative costs.
  • Equity in your home. Check how much equity you have as it could impact the terms or interest rate a lender offers.
  • Your credit score. Make sure it’s in good shape before applying to refinance as your credit score plays a vital role in securing favourable refinancing terms.
  • Financial goals. Consider your long- and short-term financial goals such as reducing mortgage repayments, getting debt-free faster, or accessing home equity for renovations.
  • Loan type. Decide if you want to switch from a fixed rate mortgage to a variable rate mortgage (or vice versa). Each loan type has its own set of advantages and disadvantages.
  • Market conditions. Consider the overall economic and property market conditions. Things like fluctuating interest rates, property values, and economic stability can influence your decision to refinance.

How do I refinance a mortgage in New Zealand?

Essentially, refinancing means replacing your existing mortgage with another to get better terms, access favourable interest rates, borrow more, or achieve other financial benefits. Follow these steps to refinance your NZ mortgage:

  1. Evaluate your financial situation. Check your credit score, income, career history, and level of debt relative to your income to ensure you meet lenders’ requirements for refinancing.
  2. Determine existing equity. Use online estimates of your home’s value and compare that to what you owe to get an idea of the equity you have in your home. However, keep in mind that lenders usually have loan-to-value ratio (LVR) limits, affecting the potential amount you can borrow in a refinance.
  3. Shop around and compare. Work with a Mortgage Adviser who can help you make an informed decision about refinancing. Explore various lenders and mortgage products to find the best fit for your financial situation.
  4. Gather financial documents. Prepare the necessary documents including proof of income and expenses, existing debt and savings.
  5. Submit your loan application. Choose a loan that matches your financial goals. Apply for your new mortgage and qualify.

One of the greatest advantages of working with a Mortgage Adviser, like those at Max Mortgages, is that we can walk you through the entire mortgage refinancing process. We will help you understand the associated costs, evaluate if refinancing is the right move for your specific situation, get all the paperwork in order, assist with the application, and more. As ethical Mortgage Advisers, we’ll only suggest mortgage refinancing when it genuinely suits you. Explore this blog to discover the key reasons to use a Mortgage Adviser!

Advice from the experts

For more home loan advice or guidance around mortgage refinancing, talk to the team of mortgage experts at Max Mortgages. Get financial and mortgage advice to help you make an informed decision about whether to refinance your mortgage, and get assistance with choosing the right lender and mortgage product to fit your circumstances and financial situation.

Contact a Mortgage Adviser


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