Refix, restructure or refinance? How to ensure your home loan continues to work for you.
Often clients think that once settlement has been completed, they set and forget about their home loan for the next 30 years.
Now you can definitely do this to a degree, but we recommend keeping your lending in the back of your mind, reviewing it every now and then to ensure it is still working in your favour.
In 30 years, your life is without a doubt going to look a little different. You have different priorities and goals compared to when you first got your home loan. Your lending should evolve with you. That can be as simple as refixing for various time periods to suit your shorter-term goals, or you may look to restructure or refinance your loan completely to better suit your needs. Let’s have a look at what these options would look like.
Refixing your home loan
Definition:
This is when you set your home loan to a ‘fixed’ interest rate for a set timeframe varying from 6-months up to 5 years. The interest rates are set by the lender and you won’t be able to change your interest rate until the end of the fixed term without incurring fees.
Alternatively, you may leave your home loan on a floating or variable rate which is an interest rate that is once again set by the lender however it varies over time and doesn’t have a fixed timeframe. This gives you flexibility but often this interest rate is higher than the fixed rates meaning you’ll likely pay more interest over time.
Advantages:
- Certainty of your repayments for the set period of time.
- Secures your lending from fluctuations in interest rates.
- Gives you the option to budget based on your repayments.
Disadvantages:
- There will be break fees should you wish to break your fixed term.
- You risk missing out on future interest rate decreases.
- There's less ability to pay down the loan sooner.
Restructuring your home loan
Definition:
A home loan restructure is when you look to either split your lending into smaller loans, or add them together. It also involves changing the types of loans you have such as changing a fixed home loan to a revolving credit or offset loan.
Advantages:
- This gives you the opportunity to spread your risk, breaking your lending into smaller loans and setting them to various fixed terms.
- You’re able to action a debt consolidation, adding your short term debt to your home loan.
- It gives you access to different lending products such as a revolving credit or offset loan.
Disadvantages:
- You may incur fees if you break any existing loans.
- It may be harder to keep up with your lending if you have multiple loans or a revolving credit.
Refinancing your home loan
Definition:
This is when you transfer your home loan to a new lender, maybe due to better interest rates at the time of better policies and product offerings.
Advantages:
- This gives you the opportunity to make the most of competing interest rates across different lenders.
- You'll also have access to different products and services that may help you pay down debt sooner.
Disadvantages:
- You may be subject to break fees and lawyer fees when completing the refinance.
- If you have only had your lending for a short period of time and received a cash contribution upon settlement you may have to pay a portion of this back to the lender.
These are all great options to consider when reviewing your home loan to ensure your lending continues to work for you. If you’d like to learn more about these options, please get in touch with one of our mortgage advisers who can provide tailored advice fit to your situation.
Looking forward to hearing from you soon.
Fiona & Amy
NZ Mortgage Advice.
