Homeowners, this is the perfect time for you to refinance in New Zealand. The mortgage rates are sliding down. The average mortgage rates in January this year was around 4.53 percent which has come down to 3.92 percent as recent as last week. The decline in interest rates has increased mortgage refinancing.
Lower interest rates means more savings, but you need to make sure that your savings aren’t overshadowed by the fees and charges involved with refinancing. Refinancing your mortgage may cost you in the long run, so do your research and be informed.
Making the decision to refinance
Here are a few tips to determine whether you should refinance or not.
- Fees: The costs associated with refinancing include mortgage broker’s services fees, credit reports fees, and title insurance fees. Get a good look at these costs by starting with “good faith estimate”. It is a form that lenders provide which gives details about projected costs for your home loan. Some costs such as mortgage broker’s services fees do not change whereas title insurance fees may change until the mortgage rate is decided. Your loan officer will help you with determining your total monthly payment after refinancing.
- Get low-enough rate: Usually, refinancing is worthwhile only when borrowers cut off 1.5 to 2 percentage of points from their interest rate. To qualify for refinancing, you should have your proof of income and ideally 20 to 30 percent equity in your home.
- Do the math: Do calculate if refinancing will help you save substantially. First of all, add up your current principal and interest. Then, multiply this number by the number of months left on your loan. Do the same for the figures that come out after refinancing. You can use online calculator for estimating whether you will substantially save with refinancing or not.
Once you’ve decided
So once you know that refinancing is worthwhile and decide to go for it, these tips will help you further expand your knowledge.
Determine when you will break even: After refinancing, you will be saving a certain amount every month. But then you’ll also have to cover your refinancing fees. Covering the fees will take a certain amount of time. So take into consideration the amount of time you’re going to stay in your home.
For example, if you have a mortgage of $200,000 at an interest rate of 5.5 percent and you are refinancing it at 4 percent then you’ll save around $180 per month. Now, suppose your refinancing fees are $2,500 then it will take you around 14 months to break even.
If the time to cover your refinancing costs is considerably shorter than the amount of time you plan to stay in your home then you should consider refinancing otherwise not.
Shop around: Get a detailed estimate of closing costs from different banks and ask them to provide their estimates in writing. Some lenders will allow you to avoid upfront costs by rolling your refinancing fees into your home loan. But this will increase your monthly payments for the entire loan duration. In this case, get a comparison of refinancing fees paid upfront and refinancing fees added into your mortgage.
Refinancing has its own positives and negatives. Refinancing without researching can cost you more than your current home loan. It can also save you substantial amount of money in the long run, give you lower interest rates and release your home equity. But make your decision only after careful research when it comes to refinancing your home loan.