When does it make sense to refinance your mortgage?
While making use of a mortgage repayment calculator in New Zealand can help you secure the best home loan at any given moment, market conditions can and do change over time – and this can have a major impact on your finances.
Thankfully, there is a possible solution. Mortgage refinancing essentially involves replacing your existing home loan with another one that is better suited to your needs and the current economic climate. There are two key moments when you should consider refinancing your mortgage:
1. Better interest rates are available
If market conditions happen to swing in buyers’ favour, refinancing may enable you to score a new home loan at better interest rates. For example, if you locked into a fixed rate home loan a year ago, the official cash rate dropped and banks began passing on savings to customers, it could make financial sense to look at refinancing. Don’t forget to weigh up the benefits against breakage fees and other expenses!
2. There’s a chance to reduce the term of your loan
Most fixed rate home loans in New Zealand have restrictions in place (typically hefty fees) to deter mortgagors from making additional repayments on their home loans. Ultimately, this prevents you from paying off your mortgage as quickly as you could, and means you end up paying more interest than necessary. Refinancing your mortgage and taking out a new home loan could help you escape these repayment limitations and allow you to pay off your debt more quickly.
It’s important to keep in mind that refinancing your mortgage is a pretty big decision, and you’ll have to think carefully as to whether the benefits outweigh the risks. In our next article, we’ll take a look at when it doesn’t make sense to refinance your home loan.
If you want to have a no-obligation chat with an expert, get in touch with one our partnered mortgage advisors.
Happy home buying,
The PocketWise team