Refinancing your mortgage

Thinking of refinancing? Discover the ins and outs of the process.

3 minute read

Refinancing a mortgage can be complex. Making the right decision takes time, research, and a good amount of forward-planning.

BNZ Home Loan Partner Simon Crang says understanding why you want to refinance is just as important as understanding how to.

Refinancing: when, why and how

What is refinancing a mortgage?

“Refinancing is the process of transferring your home loan from one bank to another,” says Simon. When you refinance, you’re essentially paying off your existing loan, then taking out a new loan at a different bank. Refinancing is sometimes referred to as refixing or restructuring, but the three are very different things.

Common reasons to consider refinancing

There are several reasons you might want to look into refinancing your home loan, including:

• locking in a more competitive interest rate
• taking advantage of another bank’s products or services
• reviewing your loan’s structure
• or being able to borrow a larger amount.

“It’s important to understand refinancing isn’t just about interest rates,” says Simon. “It’s also about the bigger picture, and the overall benefits.”

When is the best time to refinance your mortgage?

The best time to think about refinancing is towards the end of your current loan’s fixed rate term, or when your financial circumstances have changed. Perhaps your income has significantly increased, or you’re looking to borrow more to buy a new house or investment property.

 “BNZ lets you lock in a new rate up to 60 days before your mortgage rolls over,” says Simon. Just be aware that a ratelock break fee and early repayment charge may apply.

How to refinance your mortgage

Step 1: Consider your reasons for refinancing

“I always ask, why are you looking at changing?” says Simon. “Are you unhappy with your bank? Do you want a better rate? Do you want to borrow more?”

Your goals might be better achieved by restructuring or refixing. It’s important to make sure refinancing is the best solution.

Step 2: Explore the costs of refinancing

Refinancing a mortgage can come with costs. These costs can include:

• legal fees
• early termination or repayment fees on your current loan
• any cash reward clawbacks (when you have to return your cash rewards) from your existing bank
• new house valuation fees – the bank will usually organise this for you but you will be responsible for the cost.

“The associated costs might mean switching for a slightly lower interest rate, such as 0.2% p.a. lower would actually leave you out of pocket,” says Simon. Tally up every possible refinancing expense to make sure the benefits of switching outweigh the costs.

Step 3: Do your research

Once you’ve looked at your reasons and possible costs, it’s time to do some research.

It can be tempting to focus on rate-shopping, but Simon encourages looking past interest rates alone. 

Some banks may have additional offers, such as cash contributions or no application fees, so it pays to compare more than just interest rates.

Step 4: Talk to your bank

It’s also important to talk to your existing bank. Ask for a clear picture of any costs associated with early termination. If you’re with BNZ, you could also book in for a Banking Review. Having a review is an ideal way for us to make sure your banking is working based on what's important to you now and in the future.

Step 5:  What happens next

If you decide to go ahead with refinancing, here’s what generally happens next:

• You’ll fill out a loan application, provide bank statements, proof of income and anything else the bank requires.
• Your new bank will decide whether to approve the loan.
• If the loan is approved, the bank will send you a letter of approval outlining your new terms.
• You’ll work with a lawyer to sign any necessary documents for the new home loan.
• Your mortgage will officially be refinanced.

Switching your home loan to a new bank is a big decision. So if you’re thinking about home loan refinancing, be sure to weigh up all the pros and cons. To learn more about how to refinance your mortgage, talk to the team at BNZ.

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This material is for general information purposes only and does not constitute, and is not intended as, personalised financial advice or as a replacement for legal advice. BNZ strongly recommends you seek advice specific to your personal financial or legal situation from a qualified adviser. Neither BNZ nor any person involved in the material accepts any liability for any direct or indirect loss or damage arising out of the use of, or reliance on, all or any part of the content.

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