Should I Refinance My Mortgage in NZ? How to Work Out If Switching Is Worth It

The short answer

Refinancing is worth it when what you save over the time you'll stay with the new lender is clearly more than what it costs to switch. That sounds obvious, but the costs are where people get caught out. A lower rate on its own doesn't tell you much.

What refinancing actually means

Refinancing means moving your home loan to a different lender, or restructuring it with your current one. It's not the same as refixing, which is simply choosing a new fixed term with the same lender when your current one ends.

The costs to add up

Break fee. If you leave a fixed term early, the lender can charge a break fee to cover the interest it loses. It tends to be larger when your rate is higher than current wholesale rates and when there's a long time left on the term. If rates have gone up since you fixed, it may be small or nothing. The figure changes day to day, so ask your lender for a current quote in writing.

Legal and discharge costs. You'll usually need a solicitor to discharge the old mortgage and register the new one, and your current lender may charge a discharge fee. Some lenders contribute towards these costs when you switch.

Clawback on an earlier cashback. If your current lender paid you a cash contribution, leaving within the clawback period (commonly three to four years) usually means paying some or all of it back. Often the amount repayable reduces over the period, so check your loan documents.

What you can gain

A lower rate. The most common reason to switch.

A cashback. Some lenders pay a cash contribution when you move your loan, often in the low thousands of dollars. It isn't free money: it normally comes with its own clawback period, so it's really a discount on switching costs.

A better structure. You might split your loan across several fixed terms, add a floating portion or an offset account, or consolidate other debt. Sometimes the structure matters more than the rate.

A simple way to run the numbers

Add up your savings and subtract your costs:

(Interest saving + cashback) – (break fee + clawback + legal and discharge fees) = net benefit

Here's a made-up example. Say your rate drops by 0.30% on a $600,000 loan. That's roughly $1,800 a year less interest at the start. The new lender offers a $4,000 cashback, and switching costs are $1,500 with no break fee because your fixed term is ending. Your first-year benefit is about $4,300 ($1,800 + $4,000 – $1,500). Then remember the new cashback has its own clawback, so the picture over three or four years is what counts, not just year one. These numbers are illustrative only, not a quote.

Timing matters

The cheapest time to switch is usually when your fixed term ends, because there's no break fee. Before you move, it can also be worth showing your current lender a written offer from a competitor. Some lenders will match or improve their rate rather than lose the loan, and staying put avoids most switching costs.

What about lending rules?

When your loan amount stays the same or goes down, refinancing is generally treated more leniently under the Reserve Bank's deposit and debt-to-income restrictions. But a new lender will still assess your income, expenses and credit history under its own policies, so approval isn't automatic.

When it's probably not worth it

• The break fee is large and swallows the savings.
• The rate difference is small.
• You expect to sell or move on soon, so you won't be around long enough to recover the costs.
• You're close to the end of a clawback period and could simply wait.

Next step

If you'd like to compare your current loan with your options, use our mortgage repayment calculator to see the effect of different rates, or read more about refinancing and restructuring. Jeremy is also happy to run the numbers on your actual loan.