Switching Banks: A Complete Guide to Refinancing Your Mortgage in NZ

Refinancing means moving your mortgage from one lender to another. The new lender pays out your existing loan, and you begin making payments to them instead. Beyond potential rate savings, refinancing can provide access to better loan features, cash contributions, and improved service.

While the benefits can be significant, refinancing involves costs and effort. Understanding the full process helps you evaluate whether switching makes sense for your situation and prepare for what is involved.

When to Consider Switching

A fixed-rate expiry or a change in needs can be a useful review point. Compare your current lender’s written offer with other available options, including fees, features and total cost rather than assuming another lender will be cheaper.

Life changes may also prompt a review. Income increases might allow you to access better rates based on your improved position. Relationship changes, whether new partners combining finances or separations requiring loan restructuring, often involve refinancing considerations.

Your fixed rate is expiring and competitors offer better rates. You have not reviewed your mortgage in several years. Your circumstances have improved and you might qualify for better terms. You are unhappy with your current lender's service. You want loan features your current lender does not offer.

The Refinancing Process

Refinancing requires a new lender assessment and legal transfer. The documents, valuation requirements and timing depend on the lender and the application.

Step 1: Compare Your Options

Compare more than headline rates: include the loan structure, term, fees, incentives, repayment flexibility and total cost. An adviser can compare the lenders they work with; ask which lenders are and are not included, and how the adviser is paid.

Step 2: Application and Approval

Apply to your chosen new lender with financial documentation similar to your original loan application: income evidence, bank statements, identification, and property details. The lender assesses your application against their criteria and orders a property valuation if required.

Approval timelines vary from a few days to several weeks depending on lender workloads, your circumstances' complexity, and how quickly you provide requested information. Having documentation ready before applying accelerates the process.

Step 3: Settlement

Once approved, your new lender's solicitor coordinates with your existing lender to arrange the transfer. On settlement day, the new lender pays out your existing mortgage and registers their mortgage against your property. Your old bank removes their mortgage from the title.

You typically have little to do during settlement. Your solicitor handles the legal work, and the lenders manage the money transfer between themselves. You simply start making payments to your new lender from the agreed date.

Timing varies with the lender, documentation, valuation and legal work. Confirm the proposed settlement date and any fixed-rate expiry or early-repayment implications before accepting an offer.

Costs of Refinancing

Refinancing involves several costs that must be weighed against potential savings. Understanding these costs helps you calculate whether switching makes financial sense.

Legal Fees

Legal fees vary with the work required. Obtain a written quote and compare it with the actual terms of any lender contribution; do not assume rate savings will recover the cost within a particular period.

Break Fees

If you repay a fixed-rate loan early, the contract may allow an early-repayment charge. Obtain a current written payout figure and fee explanation from the existing lender before committing to switch.

Do not infer the charge from headline rate movements. Compare the lender’s current payout figure with the new offer, all switching costs and the expected total cost over the period you are assessing.

Valuation Fees

The new lender may require a valuation and will specify the acceptable type or provider. Ask about the requirement and obtain the current fee before proceeding.

Cash incentives and eligibility vary. Check the amount, qualifying conditions and any repayment or clawback terms in writing, and include them without describing the switch as free.

What Happens to Your Old Bank

When you refinance away, your existing bank receives notice that their mortgage is being paid out. They prepare a final statement showing the exact payout amount including any accrued interest and fees. After settlement, they provide discharge documents to clear their interest from your property title.

The payout and discharge process, notice requirements, fees and any incentive repayment depend on the existing contracts. Ask the lender and lawyer for a written settlement figure and required steps.

Potential Complications

Most refinancing proceeds smoothly, but occasionally complications arise. Understanding potential issues helps you address them proactively.

Changed Circumstances

If your income has decreased, you have taken on additional debt, or other aspects of your financial position have weakened since your original loan, the new lender may decline your application or offer different terms. Assess your current circumstances honestly before applying.

Property Value Issues

If your property value has decreased, your equity position may be weaker than expected. The new lender's valuation might come in lower than you anticipated, affecting the LVR and potentially the rate offered or approval itself.

Title Issues

Occasionally, title searches reveal issues like unregistered easements, caveats, or other encumbrances that complicate the transfer. These are rare but can delay settlement while resolved. A lawyer's title review early in the process identifies any concerns.

Working with a Mortgage Adviser

A mortgage adviser may compare options and assist with an application, but their lender panel and service scope vary. Ask which lenders they deal with, which they do not, and why a recommendation fits the agreed needs.

Many mortgage advisers are paid commission by lenders, but fees and other charges can apply. Ask for the adviser’s fees, lender panel, commissions and conflicts before engaging them.

Set up your new payment arrangements before the first payment date. Update any automatic payments linked to your old account. Keep records of your old mortgage for tax purposes if any portion was investment-related. Consider your ongoing mortgage strategy with your new lender.

Reviewing a mortgage can identify alternatives, but switching is not automatically better. Base the decision on affordable repayments, contract terms, total cost and personal circumstances, with regulated advice where needed.