Should You Refinance? — Understanding the Pros and Cons
Refinancing can offer better rates, cashback and greater flexibility, but the potential benefits should be carefully weighed against the costs involved.
I. Benefits of Refinancing
1. Cashback: Major New Zealand banks often offer cashback incentives, usually requiring customers to keep their lending with the bank for three to four years. Once this period has ended, refinancing to another bank may provide an opportunity to receive a new cashback offer, which can vary depending on the lender and loan amount.
2. Access to Lower Interest Rates: While interest rates between banks may be relatively similar, even a small difference can result in meaningful savings on a large home loan. Banks may also offer special rates or limited-time lending products that could provide additional savings.
3. Restructure Your Loan: Refinancing provides an opportunity to restructure your lending based on your current financial position and future plans. This may include choosing between principal-and-interest or interest-only repayments, adjusting fixed and floating portions, or extending the loan term to improve cash flow.
4. Increase Your Lending or Access Different Products: Some customers may need additional funding or products such as offset home loans or revolving credit facilities. If your existing bank cannot provide the required product or lending limit, refinancing to another lender may offer greater flexibility. You may also be able to apply for additional lending as part of the refinance.
II. Potential Costs
1. Legal Fees: Refinancing generally involves legal work, which may result in additional costs.
2. Mortgage Discharge Fees: Your existing lender may charge fees for discharging the mortgage over your property.
3. Early Repayment Costs: If you refinance during a fixed-rate period, you may be required to pay an early repayment or break fee.
4. Other Costs: Depending on your circumstances and the lender’s requirements, additional costs may include a registered property valuation or building report.
Summary:
Refinancing can provide access to cashback, competitive interest rates, a more flexible loan structure and a wider range of lending products. However, there may also be costs involved, so it is important to assess the potential benefits and expenses based on your financial position and individual needs before making a decision.