Mortgage refinancing is a strategic financial decision that can have a significant impact on a homeowner’s overall financial health. An understanding of when and how – as well as how often – to refinance the mortgage can lead to substantial savings and improved financial flexibility. Read on to find out why homeowners choose to refinance the mortgage and how often, how the refinancing process works, along with the pros and cons of mortgage refinancing in New Zealand.

When to refinance

Refinancing the mortgage can make sense in a few situations, and it’s helpful for homeowners to recognise when refinancing might be suitable. Some common situations include:

• Lower interest rates: If interest rates have dropped since you first took out your mortgage, refinancing to take advantage of lower interest rates could result in substantial savings on interest charges and reduced repayment amounts.
• Changing market conditions: If the housing market has improved and the value of your home has increased, you may have more equity in your home. In this instance it could make sense to refinance the mortgage for a better loan to value (LVR) and potentially access improved interest rates and loan terms.
• Changing lifestyle: Changes to your lifestyle, including marriage or divorce or a new addition to the family, could signal an opportunity to refinance and adjust the mortgage to fit your new circumstances.
• Release equity: Whether you’re planning to renovate your home or pay for a necessary medical procedure, refinancing to access the equity in your home and free up some cash could provide the funds you need when you need them.
• Debt consolidation: Consolidating all of your debt into one loan – often at lower interest rates or improved terms – can make good financial sense. Not only does it simplify the repayment process, but it can help you pay back your debt faster by reducing the amount of interest you’re charged.
• Financial hardship: If you’re struggling to pay your mortgage – perhaps due to an illness or job loss – refinancing your mortgage over a longer term will reduce your repayments and could help relieve some of your financial stress.

How to refinance and how often

For homeowners considering mortgage refinancing, the question of how often to refinance is a common one. While reviewing the mortgage regularly – at least every year – is important, it may not always make sense to refinance.

Additionally, refinancing usually involves some cost, so it’s always a good idea to weigh up the cost of refinancing against any potential savings, before deciding to move ahead and refinance. And get advice from a mortgage expert – such as those at Mortgage Express – to make an informed decision about whether or not mortgage refinancing is right for you.

The refinancing process may seem daunting, but with the right guidance, it can be straightforward and rewarding. Here's a general overview of the steps involved:

1. Review your finances: Meet with a mortgage adviser who will help you assess your current financial situation, credit score and existing mortgage to determine is refinancing is viable.
2. Shop around and compare: Research various lenders and mortgage products to compare how your existing mortgage stacks up with regards to mortgage terms and interest rates. A mortgage adviser can assist with this process too.
3. Prepare your paperwork: Gather together the necessary financial documents, including proof of income, bank statements and any other required information to apply for a new mortgage.
4. Application and approval: Complete the mortgage application process with your preferred lender, who will evaluate your financial information, and upon approval, provide a loan offer.
5. Settle: Once you accept the loan offer, your new mortgage is finalised, and your existing mortgage is paid off.

The pros and cons of refinancing

Before proceeding with refinancing, it's important to carefully weigh up the advantages and disadvantages:

Pros:

• Potential cost savings through lower interest rates.
• Access to home equity for various purposes.
• Debt consolidation simplifies repayments.
• Flexibility to adjust loan terms according to your financial goals.

Cons:

• Refinancing costs and fees.
• Potential prepayment penalties on your existing mortgage.
• Lengthened loan term may increase the overall interest paid.

If you're unsure about whether refinancing is the right choice for you, contact a Mortgage Express branded mortgage adviser whose expertise can help you navigate the complexities of the process and find the most appropriate mortgage solution to suit your needs.