Refinancing your mortgage may seem attractive right now, especially if you are being offered a very attractive fixed rate for the next few years. However, there are some factors you will need to consider before moving to another lender.
Refinancing costs
What are the costs associated with refinancing to another lender? you could have any (or all) of the following costs.
Legal Fees
These can vary quite substantially between legal firms, the number of properties you are refinancing, and how complex your financial arrangements are now which will take more work in refinancing your mortgage, then, there are Trusts, Trustees and any other legal matters that may make the lawyers job more complex and therefore, more expensive for you.
Valuation Fees
You may need a property valuation over one, some or all of your properties. You could take a quick look at oneroof.co.nz for an estimated value of your property/ies.
Break Rate Penalties for Mortgages
If you are refinancing your mortgage from one lender to another, you will need to check to see whether any of your current loans you are refinancing may incur any brake rate penalties. For example, if you have a loan on a 3 year fixed rate and you want to repay the loan in full and you’re only 1 year into your 3 year fixed rate term, there may be substantial penalties your old lender may be entitled to charge you.
If you are going to refinance and break any fixed rate loan, get a quote from the current lender…get it in writing, don’t get a verbal over the counter estimate.
Cross Collateralised Lending
This is when a lender can hold titles on all properties you own and secures all mortgages over all properties, and not each property and loan separately and a default on one loan can constitute a default on all loans.
In a scenario where you want to sell the rental property, the lender would need to be happy with the amount you are going to repay back to them, and they would have to be happy with the remaining properties they have as security over the remaining loans you will have. Sometimes, is it not that simple, which is why you should get the advice of a financial adviser before you head down this road.
Lender Refinancing Contributions
Refinancing can be expensive and when a lender offers some financial incentive to help you with costs, you should check out the fine print and make sure you understand what the terms are for any financial contribution such as, if they were to offer you $3000 when you take out a new home loan with them, what are the terms and conditions of receiving that money? (There are some!) and will you have to pay this money back at any stage, and the short answer is yes, usually if you repay the loan in full within the first three years but please check with us, or ask your lawyer to explain your legal obligations if you were to accept the money offered by the bank.
Refinancing your mortgage
Only you can decide whether refinancing is the right thing for you to do now. The best thing you can do is your homework around the numbers which a good financial adviser can help you do. If you need advice, please contact us anytime and we can help you with part of your decision making and present the financial information to you, in a way you can understand.
