• Welcome to Apogee Legal’s monthly column, where we demystify legal concepts and provide you with knowledge on navigating the legal side of life. This month, Carolyn Cooper talks about the benefits of shopping around for a better mortgage rate.

WINTER is here, in more ways than one. Alongside cool temps, many Kiwis are feeling the chill of tough economic conditions.

Shopping around for a better mortgage rate is one tool home owners can use to try get some financial relief.

Refinancing is the banking/legal term for switching your mortgage to a different bank.

The primary purpose of refinancing is to achieve a lower interest rate to reduce your outgoings. But there can be other important reasons to refinance.

Perhaps you’d like to gain access to a lump sum of money for a house improvement that can’t wait, or for medical treatment.

Another reason to refinance could be to consolidate your debts, simplifying your money management and potentially improving your credit score.

Average mortgage rates have more than doubled over the past two years.

Refinancing can seem daunting – but when you have a loan in the hundreds of thousands, even small percentage movements can make a difference.

As of June 2024, the average first-home buyer mortgage was $554,629.

On a mortgage of this size, reducing your interest rate by 0.5 percent would save $2773 over 12 months.

• Is refinancing right for you?

The first step is find out whether the numbers stack up.

You can undertake this process yourself, or enlist the help of a mortgage broker. If you do go ahead with refinancing, you’ll also need to work with your lawyer to change the mortgage details on your property’s legal title.

There are three key areas to look at:

1. Compare rates for your current mortgage.

You can use online mortgage comparison tools, talk to a broker, or speak directly with other banks.

At the same time, you might want to work with a professional adviser to look at alternative ways to structure your mortgage (for example, splitting the mortgage between different rates) to better suit your current financial situation and goals.

2.  Calculate what the costs will be to switch your mortgage to a new lender.

These include:

• Cost to “break” the terms of your mortgage with your current lender. This can include a break fee, administration fee and repayment of any incentive or cash contribution you may have received when you originally took out your mortgage.
• Your lawyer’s fees to discharge your existing mortgage and register the new mortgage.
• Any extra costs required by the new lender – such as a valuation of your property.

3. Find out what costs might be covered by the new lender

The new bank will often meet some or all of the costs of refinancing by way of a cash contribution – each lender will be different, so you’ll need to find out.

• Making the decision to refinance

Refinancing won’t be the answer for everyone. It’s always best to seek professional guidance on what is best for your individual situation.

However, it can be way to reduce outgoings, generate savings, and gain more control over your financial situation – whatever the economic weather.

The information provided in this column is for educational purposes only and should not be taken as legal advice.

For specific legal concerns or questions, please consult with your lawyer.