Refinancing Your Mortgage in NZ: When Does It Make Sense?

Refinancing — moving your mortgage from one lender to another, or restructuring it inside your existing lender — can save significant money, but only when the maths actually works. Here is the framework we use with clients to decide whether to move, and when.

The break-even calculation

The first number to know is your break-even point. Refinancing comes with costs: legal fees of around 1,000 to 1,500 dollars, sometimes a small valuation fee, and potentially break fees if you are inside a fixed term.

The savings come from a lower interest rate (or a cash contribution from the new bank). If you save 0.5 percent on a 500,000 loan, that is 2,500 dollars a year — enough to recoup costs within 12 months. If you save 0.1 percent, it might take 8 years, by which time you have re-fixed twice and the saving has evaporated.

When refinancing usually pays off

Refinancing tends to be a clear win when:

• Your fixed term has rolled off (no break costs to worry about)
• A new lender is offering a meaningful cash contribution (3,000 to 5,000 dollars is common in competitive markets)
• The rate gap is at least 0.3 percent
• You have more than 5 years remaining on the loan
• You are willing to commit to the new bank for the obligatory clawback period (usually 3 or 4 years)

When refinancing usually does not pay off

It rarely makes sense when:

• You are deep inside a fixed term — break fees can dwarf any rate saving
• The rate gap is small (under 0.2 percent)
• You have only a year or two remaining on the loan
• Your equity has dropped (LVR has gone the wrong way) — you may not qualify with the new lender

The cash contribution game

Most NZ banks offer cash contributions to new mortgage customers — typically 0.6 to 1 percent of the loan amount, capped at a few thousand. A 600,000 loan can attract 3,000 to 6,000 dollars in cash. This is real money and can be the deciding factor in whether the refinance pays off.

The catch: there is almost always a clawback. Refinance again or repay the loan inside the clawback period (usually 3 to 4 years) and you have to repay the cash contribution. Plan for staying put for the full clawback period.

Restructuring without refinancing

Sometimes the cleanest move is not to switch banks but to restructure inside your existing bank. Split the loan into multiple terms, add an offset facility, or move from monthly to fortnightly payments. No legal fees, no clawback, just a tidied-up structure that fits your goals better.

Get the numbers run before you commit

Refinancing decisions are made one bank at a time, and the right answer depends on your specific loan balance, remaining fixed term, equity position, and the cash deals currently available. Talk to SMS Loans before you sign any mortgage transfer paperwork — we will tell you whether the deal you have been quoted is actually the best option for you.