Is it the right time to re-mortgage your home?

OPINION: A mortgage tends to be the single biggest expense most home owners face, and what most of us don’t realise is that it can often provide the biggest opportunity for cost saving.

As New Zealand officially moves into what economists have labelled a “property slump,” home owners are now faced with more competitive interest rates and home loan packages as banks fight for their share of the mortgage business.

According to the Reserve Bank of New Zealand, the total number of residential mortgages taken out is down by 10.8 per cent from $4,117 million in January 2016 to $3,696 million in January 2018. If there was ever the time to consider a re-mortgage and potentially save on your total repayment, it’s believed to be now.

But that said, re-mortgaging isn’t an option for everyone. Because of the cost and complexity of re-mortgaging your home, it’s important to enlist the right expert advice to negotiate lending terms and structures on your behalf. Non-bank affiliated home loan advisers work with wide range of banks and home loans products, and therefore are in the best position to offer you personalised and unbiased advice.

Best of all, this service often comes at no cost to you.

If you’re thinking about re-mortgaging your home, here are four crucial factors to consider and speak to a financial mortgage adviser about.

Reasons for refinancing

There are a number of reasons home owners may consider refinancing their property. Cost-saving is the most common reason. Home owners who choose to refinance usually aim to increase their monthly instalments, reduce the lending term and/or reduce the total interest incurred over the full period of the loan.

Another reason for home refinancing is debt consolidation. Re-mortgaging allows home owners to combine their debt into a lump sum and repay it at a more affordable interest rate.

For those looking to pay their children’s university fees, buy a second property or undertake home improvements, equity release can necessitate re-mortgaging. When you refinance your home, you may gain access to this equity at a time when you need it the most.

It’s important to be clear on why you’re re-mortgaging your home as it assists in negotiating new mortgage terms to best suit your financial goals.

Future-proofing your new mortgage

If there’s one thing I’m more passionate about than getting clients into their new homes, it’s assisting them to become debt free. When considering re-mortgaging your home, it’s a good idea to revisit your finances and critically evaluate all existing costs to see what you can reduce or eliminate. For example, spending $25 less a week on takeaways or coffee and funnelling that into your home loan can save on interest and reduce your loan term.

Furthermore, ask yourself if you’re in the position to pay a higher monthly instalment should interest rates increase either while on a floating rate, or at the end of your fixed rate term. This will help stress-test your mortgage for the long run before you take it out.

Smart home loan structures

Depending on your financial end goal you may like to consider a full or partial floating home loan structure when refinancing. This could allow you to benefit from making lump sum payments on an ad hoc basis, where every extra dollar transferred into your home loan means less interest paid in the long run.

A revolving credit facility is another option to explore with your financial adviser. It allows you to consolidate all your accounts – from your savings account to credit card to home loan - and as interest is charged daily, it can save you in overall interest and reduce your loan term. Be warned: This is only for those who can commit to being disciplined with credit facilities.

Finding the right structure is vital to paying off your mortgage as quickly as possible – be sure to lean on your home mortgage adviser to help you find the best package for you.

Cost savings versus re-mortgaging costs

It’s important to factor in all possible costs with your existing and potential new bank, such as exit fees, early repayment charges, application fees and lawyer costs. The ultimate check when deciding whether to refinance your home is simple: ask yourself, “will the cost saving over the loan term amount to less than the total cost to re-mortgage?” If the answer is a resounding yes, going the re-mortgaging route is a no-brainer.

Article by Taviri Ono

Taviri Ono is a mortgage adviser with Lifetime Group Limited. He has over 20 years’ experience in the banking and home loan industry and lives in Christchurch with his wife and four children.