Navigating Mortgage Refinancing: 5 Things You Should Know Before You Start

What is refinancing?

Refinancing is repaying your current mortgage and taking out a new mortgage with a different lender.

Why would I want to refinance my mortgage?

There are several benefits to refinancing your mortgage:

o  Lower interest rates – if you can find a lower interest rate on your mortgage, you will be financially better off.

o  Cash back incentives – most lenders usually offer cash back incentives if you take out a new mortgage with them.

o  Starting a business – if you are starting a business, you may be able to refinance your home loan to assist you with financing your new business venture.

o  Renovating your property – if you want to borrow more money to renovate your home, you maybe able to ask your lender for more money so you can add on a new deck, room, garage etc. As with any mortgage application, this would be on the basis that you have enough equity in your home to do this.

o  Consolidate any credit card debt or paying off any car loans – if you have any credit card debt, car loans etc., you may be able to consolidate this debt into your mortgage and pay if off over a longer period and on a lower interest than you may be paying on your credit card.

Here are a couple of things you need to watch out for:

o  Break fees – if you break your fixed term mortgage i.e. you repay your mortgage earlier than what was agreed in your contract, you may have to pay a break fee.  This is because when you secure a fixed term mortgage from a lender, they also get funding to cover the amount you have borrowed. You will only be charged a break fee if interest rates have fallen from where you previously fixed your interest rates at e.g. you were paying 4.5% on a one-year term and now you are paying 3.8% on a one-year term.  At the date of publication, interest rates in New Zealand are rising so it is likely this will not be an issue if you break your mortgage.  

o  If you want to try and figure out how much your break fee may be, use this calculator.

o  Repaying any cash contribution – if you have previously received a cash contribution for your previous mortgage, normally the lender will require you to have your mortgage with them for [x] years. If you move to another lender before this timeframe is up, you may need to repay some of your cash contribution to your previous lender.

How do I refinance my mortgage?

Normally, you have two options: approach a new lender and speak to them or use a mortgage broker.  Mortgage brokers do not cost you any money (they receive a fee from the lender if you take out a mortgage with that lender) and they can often get you better rates than what are currently advertised to the public.  

Once you have picked a new lender, you will need to provide them with any required financial information, your insurance details and sometimes a property valuation.

What does a mortgage broker do?

Besides trying to get you lower interest rates, a mortgage broker can help you budget and figure out how much you can borrow, how to structure your mortgage e.g. fixed rates, floating rates, overdrafts. Mortgage brokers are a wealth of information and a great with numbers – their skillset can help you pay off your mortgage faster. Please let us know if you would like to be introduced to a trusted mortgage broker.  

Why do I need to use a lawyer when refinancing my mortgage?

Often people are surprised they need a lawyer to assist with refinancing. Lawyers arere quired because:

o  Lenders require clients/mortgagees/borrowers to receive independent legal advice before signing their mortgage.

o  Their trust account is used to receipt your new mortgage funds and to repay your old mortgage.

o  They discharge your old mortgage and register your new mortgage on your property’s record of title.

o  Your lawyer can help update your name on your property’s record of title (if you have recently gotten married) or to change they type of ownership e.g. from tenants in common to joint tenants.

o  Your lawyer will take care of providing notice to your old lender that you are leaving them for another lender. There are no hard feelings as this is a common transaction. Your old lender will provide your lawyer with an indicative repayment figure to repay on the change over date. Provided your lawyer is given enough notice, you may be able to refinance within five working days/one week.  

Please get in touch here to receive a no obligations quote for refinancing your mortgage.