Jun 28, 2021 6:56:49 AM

How to Know When To Refinance Your Mortgage

Topics: Mortgage Advisers, First Home Buyer, Buying a home in NZ 1

Most homeowners tend to set their home loan structure and then forget about it. They fix their rates for a set period of time and take comfort in knowing how much to budget for their mortgage each month. However, interest rates change, and while it may seem easier to simply set and forget, in the long-run it could be costing you several thousands of dollars more in interest charges, simply because you haven’t refinanced. Here are 3 instances when it pays to refinance your mortgage.

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1. Your financial situation changes

Over the duration of your mortgage term, it’s highly likely your financial and personal situation will change. Perhaps you get married, have a baby, or get divorced. Or you change jobs and your income improves. Or you’re retrenched and you lose your income. In any of these situations, you may consider refinancing your mortgage.

Refinancing could help you consolidate debt and other loans by borrowing more to pay back your high interest debt. Or refinancing could extend your loan term and reduce your monthly repayments. Or refinancing could let you take advantage of lower interest rates and save yourself some money.

2. Your lender’s interest rates have changed

When your mortgage is set up, you have the option of choosing between fixed and floating interest rates, or a combination of both.

Fixed interest rates are set for a specific time – usually one, two or three years – and remain unchanged for that time. Fixed interest rates offer a level of certainty and stability, as you know the interest rate will remain fixed and your loan repayments will be unchanged for that set time.

With a floating interest rate, the interest rate is dependent on changes to the OCR (Official Cash Rate) and can fluctuate either up or down. This means your interest rate will change and your repayments could go up or down.

If your home loan has been set up with both fixed and floating interest rates, you may choose to refinance when your lender is offering a better fixed interest rate, if you’re nearing the end of your fixed interest rate term, or to change the allocation of fixed and floating interest rates to match your circumstances.

3. Other lenders’ interest rates are better than yours

Many homeowners choose to refinance with a new lender when they may be nearing the end of a fixed interest rate loan term, to take advantage of more favourable interest rates offered by another lender.

Extra incentives – like cash backs – can be enticing too, but it always pays to consider the costs involved in refinancing before going ahead. Typically, extra costs could include legal fees, house revaluation fees, and break fees if you intend to break your fixed interest rate term with your existing lender. Weighing up these costs against any potential savings and cash back incentives will help you decide whether or not to go ahead and refinance your mortgage.

Consider using a mortgage calculator – like this one – to help you assess what repayments could look like.

Expert advice about refinancing or refixing

Deciding whether or not to refinance your mortgage is a big decision and one that requires careful consideration and understanding the risks and disadvantages To help you choose the best option for your unique situation, consult with a mortgage adviser.

Mortgage Express branded mortgage advisers are familiar with various lenders’ policies and interest rates, and can help you find the right balance of fixed and floating interest rates. What’s more, a Mortgage Express branded mortgage adviser can run the numbers and help you make an informed choice about whether or not to refinance your mortgage. Get in touch with Mortgage Express today.