Is Refinancing A Good Idea, Or A Bad Idea?
Many people ask themselves should I refinance my mortgage or is it a good idea to be refinancing a mortgage loan? This is a very good question and each person’s situation is going to be different so it is not a simple question to answer, but there are some considerations. First you should think about why you are even considering refinancing your mortgage. There may be a very good reason that makes good financial sense, but often it’s more of an emotional decision based on an experience with your existing bank – generally not a good bank experience.
Like many decisions in life, there will often be some benefits to refinancing a mortgage loan and some negatives too. Speak to your mortgage adviser and they can help you with making the decision.
Key Reasons To Refinance My Mortgage
Here are five of the biggest reasons that people think about when refinancing a mortgage loan:
1: Your Existing Bank Relationship Has Broken Down
People often have relationship breakdowns and sometimes this can happen with business relationships too. It does not necessarily mean that anyone is in the wrong, but at times the staff at the bank just thinks differently and it is easier to start fresh with another bank. Some people have gone through a ‘bad patch’ and their banking history might have been slightly tarnished. The existing bank might not be as helpful as they could and therefore starting a new relationship with a new bank might then be the best thing to do.
2: Your Bank Won’t Help When Needed
Every bank has a slightly different way of looking at things and it is common for one bank to not allow you to do something while another bank is quite happy for the same thing to happen.This is often the case where there is something a little out of the ordinary – you may be self-employed, receive inconsistent income, be a little older, have had some previous history or just have an unusual situation.
3: You Are With A Non-Bank
Generally people will arrange finance with a non-bank when getting bank finance is not possible.This allows you to buy a home or finance yourself through a situation (typically known as bridging finance) and you are therefore willing to accept that it’s going to cost more than the preferred bank finance would.Most people will have entered into the non-bank finance with the plan to refinance to a bank when possible.
BUT sometimes its difficult to refinance to a bank or so you might think. Here at Mortgage Managers we have access to one bank that might allow you to refinance from a non-bank to a bank today.
4: You Are Not Getting A Good Deal
Are You Getting A Fair Deal? We all want to be treated fairly by the people we deal with and a bank or any other lender should be able to treat you fairly; however unfortunately many do not and expect that you will not notice or do anything about it.
Of course it is not always possible to get the best home loan interest rates, but your bank should always be trying to offer you a competitive rate. This is where a mortgage adviser can help ensure that your bank always does offer you a good and fair home loan interest rate.
5: Your Existing Mortgage Loan Is NOT Flexible
Key things to consider are:
Increasing Repayments – in New Zealand the fixed home loans generally have lower interest rates than floating loans and therefore it makes sense to fix the majority of your mortgage lending; however by doing so you can lose the flexibility. You therefore need to know that you can pay extra on a fixed loan without being penalised. Most banks allow you to increase your repayments in some manner, but the rules vary a lot.
Decreasing Repayments – while it is important to be able to increase your repayments, it is more important to be able to decrease them again should your circumstances change. Unfortunately most banks do not allow you to decrease your repayments without being reassessed and that is a real issue. Obviously there are events that happen in life and you NEED to be able to reduce your repayments to the minimum and the last thing that you need is the bank to say NO.
Access to Emergency Funds – most people do not know that you can structure the loans so that you can access funds for an emergency without needing to apply to the bank. Of course some banks have Revolving Credit accounts and Offset loans, but there are some banks that will let you redraw from a fixed loan too.
Revolving Credit accounts and Offset loans – these can add additional flexibility if available and managed well. Most banks have Revolving Credit accounts but they may not be available for first home buyers when there was a low deposit or equity less than 20%. In recent years some banks have introduced Offset loans which are more popular and in many ways a better option, but not all banks offer these.
Unfortunately many Kiwis have taken out their mortgage without considering the flexibility as noted here; however the hope is they are made aware of what is available and therefore can look at refinancing their mortgage to get a better and more flexible mortgage.
There Are Always Costs To Refinance
When you refinance your mortgage you need to be prepared for some costs.
Typically there will be the costs for your solicitor to switch your mortgage, there may be a discharge and break fees from your existing bank and you may need a valuation on your property.
Often the new bank is willing to cover some of these costs and there may be cheaper refinance options being offered. Your mortgage adviser can explain what is available and negotiate a package with the new bank to assist you. The key is to ensure that you are getting the best from your home loan and it is always a good idea to consider any debt consolidation of any vehicle loans, personal loans, store cards or credit cards – any debts that have a higher interest rate than your home loan.
Use Our Mortgage Refinance Calculator
We have provided a mortgage refinance calculator on this website to help you work through numbers.
