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Refinancing Your Home Loan

Published in January 2024

With the cost-of-living crisis and high interest rates affecting many Kiwis’ lives, the idea of ‘refinancing’ may be on your radar as a possible way to reduce costs or access more funding.

In this article, we explain what a refinance is, what the process of refinancing involves, and things you need to be aware of if you’re considering exploring this option.

What is a refinance?

Refinancing is the process of transferring your current loan and security from your existing lender to a new Lender. It involves taking out a loan from a new lender, using that new loan to repay your existing loan with your current lender, discharging your existing mortgage and any other security and registering a new mortgage and other security in favour of a new lender.

Why would you consider refinancing?

The following are some common reasons people look to refinance their home loan:

-  Locking in a better interest rate.

-  Taking advantage of another bank’s products, services or limited offers - some banks may be willing to offer new customers a special rate or a significant cash contribution.

 - Consolidating debt – if you have an existing home loan, and debts owed to other parties (such as a credit card, car finance, etc) may be more manageable to simply take out one new loan from a new bank and repay all outstanding debts.

-  Borrowing a larger amount – for example for a renovation.

 - Reduce your regular repayments – often when refinancing (somewhat dependent on your age) the term of the loan is reset to 30 years, which could reduce your regular repayments, which has the effect of temporarily relieving some financial pressure, can result in you paying more interest over the total life of your loan.

- Free up equity.

When should you refinance?

You can refinance at any time during a loan, but given the costs and time involved, the following are good times to consider pulling the trigger:

  • Near the expiry of your current loan’s fixed rate, to avoid early repayment fees.
  • If you have multiple properties and are looking to sell one and repay some debt and restructure your loans.
  • If you are purchasing a new property.
  • If your financial circumstances change and you want to pay less or more on your loan.

If you can bundle in a refinance with another reason to meet with your lawyer, this can be more efficient both in terms of legal costs and your own time and efforts.

What is the process for refinancing?

Initial Steps: If you are interested in refinancing, we suggest that you carry out these initial steps:

1. Shop around for the best interest rates and other benefits (such as a cash contribution)

2. Consider the costs involved:

  • If you’re using a broker, check if they are charging fees.
  • Contact your existing bank and check any early repayment fees or repay cash contributions (if you’re refinancing within 2-4 years of the date you received a cash contribution, your existing bank may require repayment of some or part of this if you refinance).
  • Ask Lockhart Muir for a fee estimate to act for you on the refinance and how many properties will be involved as security.
  • Check if your potential new bank charges application fees.

3. Decide whether it’s worth proceeding with the refinance. Seek financial advice or assistance from a broker if required.

4.  Speak to a bank or broker about your options and apply for a new loan.

5. If your new loan is approved, agree on terms and the loan structure with your bank.

6. Contact Lockhart Muir and confirm that the refinance settlement date.

7. Instruct your new bank to issue loan documents to us.

What else should you be aware of?

The refinance process can take a while, so we suggest you get onto this well in advance of your intended settlement date. Solicitors generally need at least a few days between receiving the new loan documents and the intended settlement date, to liaise with your existing bank, review documentation, meet with you, and return the signed documents to your new bank prior to the settlement date.

If you are refinancing because your fixed rate is expiring, don’t wait until your rate has actually expired – sort out approval with the new bank before your existing loan is due to expire, otherwise you can find yourself paying interest at a higher floating rate until settlement. On the flipside, don’t apply for a new loan too early as pre-approvals generally have a three-month expiry so you could find yourself paying additional loan application fees.

Make sure your rates and body corporate levy payments are up to date. The new bank will require your solicitor to certify that there are no outstanding rates or levies in respect of the security property.

If your existing bank gives you an early repayment fee quote, it may only be valid until the end of the day, so the actual early repayment fee on the day of settlement, may be differ.

Many mainstream banks will require your salary to be direct credited to an account with them, which can involve having to update your bank account details with your employer and any direct debits or automatic payments.

Lockhart Muir and your new bank will need to complete AML due diligence on you – be ready to provide current photo ID and proof of address.

Before proceeding with the refinance and incurring legal costs, it’s worth asking your existing bank if they will match the new rates you’ve been offered – if agreed, you could save time, hassle and costs.

Summary - How To Refinance

1. Find best rate (and cash contribution offer).

2. Find out what it will cost you to refinance (break costs with existing bank, repayment of cash contributions, solicitor costs, new loan application fee, broker fee if any).

3. Speak to a broker or bank to check your options.

4. Apply for new loan.

5. Instruct Lockhart Muir to assit you to complete the legal aspects of your refinance.

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