Is now a good time to refinance?
Eyeing up those record-low interest rates and thinking of refinancing your current mortgage? There are some pretty good reasons to refinance depending on your needs, but is it the right opportunity for you right now? JB, Chief Squirrel and regent of refinancing, goes into more detail in the video below.
When should you refinance?
Some banks offer cash-back incentives to those who do choose to break their current loans and bank with them instead. This can mitigate the damage, but as JB says, it's often a zero-sum game. Considering how valuable your transactional history can be, you could find that the difference isn't worth the mark against your name.As JB discusses, refinancing can seem like a great idea at surface level. Who doesn't want to have a lower interest rate? But, chances are, refinancing will incur additional costs that actually offset how useful it is for you. If you have a fixed loan, which a large number of Kiwis do, you'll probably find that you have to pay breaking costs if you want to refinance before your fixed term is up. The actual costs can vary wildly depending on the term length and the amount you have left to pay. Unless you are close to finished with your loan repayments, you might find that these costs can be significant, and remove the advantages that refinancing has in the first place.
That being said, there are still good reasons to choose to refinance. You may not like the service of your bank, or you may want to work with a lender that has a local branch - or you just want a New Zealand bank specifically. If things are a little tight, and you can find a cash-back incentive that matches your break fees, the lower monthly repayments afforded by a refinance might be just enough to take you back into the black.
What about investors?
If you are a new investor with only one or two additional properties, you may not have found it necessary to refinance your portfolio yet. But that time may be coming soon, as refinancing allows you to access the equity you've built up in your current properties, allowing you to expand your portfolio even further. More properties means less risk and greater chance of strong value growth.For investors, refinancing becomes something entirely different. While the average Kiwi might want to take advantage of the lower interest rates while they are still available, investors refinance in order to access equity and maintain their safety net in the new loan-to-value ratio environment.
However, it's not just about the capital gains. As of October 1, the Reserve Bank has put in new restrictions that require most investors to maintain a 40 per cent loan-to-value ratio. That has a number of ramifications. In the realm of refinancing, if you bank with a single lender, you may find that they take the proceeds of a property sale in order to maintain this ratio across the entirety of your portfolio. As a result, liquidity is difficult to obtain. Refinancing allows you to spread your properties across multiple banks, making it less likely that this will happen.
Is it the right time?
Refinancing is a tool that is just one in the box for mortgage brokers, and it's always part of a larger financial strategy. Whether you're an investor or a regular mortgage-holder, refinancing might work for now - but will it work for you going forward?
This is where Squirrel can help. Mortgage advice is our bread and butter, and refinancing is a part of that stock and trade. Get in touch with us today to find out how we can help you with refinancing, and discovering if it's the right time for you to consider it.