Refinancing means moving your home loan to a new lender, usually to get a better rate, a better structure, or to free up equity. Done at the right time it can save thousands. Done at the wrong time it can cost you. Here is how to tell the difference.
Refinancing, refixing and restructuring: what is the difference?
These terms get mixed up, so it helps to be clear. Refixing is locking in a new rate with your current lender when a fixed term ends. Restructuring is changing how your loan is set up (for example splitting it across different terms, or adjusting your repayments) while staying put. Refinancing is moving the whole loan to a different bank. This article is about that last one.
Signs it might be time to refinance
It might be time to look at refinancing when your fixed term is ending and your current bank’s new rate is not competitive; when you want to consolidate higher-interest debt like credit cards or a car loan into your mortgage; when you have built up equity and want to borrow against it for a renovation or another goal; when your needs have changed and your current loan structure no longer fits; or simply when you are not getting good service or sharp pricing from your current lender.
What refinancing actually costs
Switching is rarely free, so weigh the costs against the savings before you move. Break fees apply if you break a fixed-rate loan partway through its term, as your current bank can charge a fee to cover their cost; this can be significant, so always get the figure in writing first. A cash contribution clawback applies if your current bank gave you a cash contribution when you took the loan, as you usually have to repay some or all of it if you leave within the clawback period, often three to four years. Legal fees cover the solicitor who handles the discharge from the old lender and registration with the new one, typically a few hundred to around a thousand dollars. And valuation costs can apply, as some lenders require a registered valuation, particularly if you are accessing equity.
The upside: cash contributions and sharper rates
Here is the part that often tips the maths in your favour. To win your business, a new lender will frequently offer a cash contribution of its own, which can offset your legal fees and even some of a clawback. Combine that with a lower interest rate over a multi-year term and the savings can be substantial. The key is to compare the full picture, not just the headline rate.
The refinancing process
In practice, refinancing usually runs like this. First, we review your current loan, rates, structure and any clawback or break costs. Then we compare offers across our lender panel to find a genuinely better deal. Next, we arrange pre-approval with the new lender and confirm any cash contribution. Finally, your solicitor handles the legal switch, and your new loan settles.
Is it worth it?
Refinancing is worth it when the savings over your fixed term clearly beat the costs of switching, or when a better structure genuinely suits your goals. As Wellington mortgage advisers, we do that comparison for you, including the awkward numbers like break fees and clawbacks, so you can decide with the full picture in front of you.