A rising interest rates environment, high pressure of high inflation rates and increased living expenses for kiwi house owners has seen clients looking at refinancing. This is something we touched on in last month’s blog on how to survive in 2023. Now with BNZ’s recent promotion *below the line offer (4.99% fixed for 12 months, limited time and conditions apply) we’re getting more clients asking – is refinancing to another bank a good option for me?
The below are general commentary I would like to share, which include what refinancing means in mortgage application terms; the common benefits; and what those potential underlined costs/ disadvantages.
Refinancing in mortgage application terms normally means switching your current mortgage/lending from current bank to another, the process requires not only the proposed bank, the existing bank, but also a solicitor to discharge current mortgage form the current bank and register under the new bank.
There are few common benefits when client take out refinancing option.
- Most of banks offer up to 1% of the loan amount as cash contribution which can be very attractive and helpful for the short-term household cashflow, especially to ease off the additional loan repayment pressure.
- An opportunity to review your financial needs by matching with different loan structures, for example, you might wish to extend the current loan term into a longer term to manage cashflow better; or you might choose to put portion of loan into revolving credit facility or offset if you have got some savings to save the interest cost, but still would like to have the re-draw flexibility in the future;
- Consolidating consume debts into home loan(s)if any to save interest costs.
However, it is very important to take those potential costs or disadvantages into consideration –
- There will be lawyer’s costs to switch bank mortgage(s);
- Check with your current bank if there is any previous cash contribution you qualified previous and if it’s less than 3 or 4 years, there might be cashback clawback.
- It’s only worthwhile if your entire loan(s) gearing on the property(ies) is due for renewal (coming off from lower interest rate). If any existing loan(s) is still in a very low interest rates, it might not make economic sense to break those loans.
- There will be a new lending application as the new bank needs to check your serviceability under current test rates and meeting the lending criteria
Using the above BNZ (below the line offer with 4.99% fixed for 12 months no cash contribution) as an example, it is suitable for clients who has got full loans interest rates due for renewal, with current bank more than 3-4 years and their short-term financial goal is to manage short term cashflow especially the next 12 months cashflow pressure, also meeting BNZ’s current lending criteria requirement. In other words, for those who outside of those boxes might not really benefit from this offer. That’s why we highly recommend that you seek help from a professional mortgage advisor.
As always, we are here to help, and suggest getting in touch with us and find out if refinancing is a good option for you.
Disclaimer: We recommend that you seek personalised professional advice from your trusted adviser before taking any action as each applicant’s situation can be vary, the above content is only general commentary.
Comments are closed.