Most of us choose a home loan once and then forget about it until a letter arrives saying the fixed term is about to end. That letter is a good prompt to ask a bigger question: should you stay put, or move? Refinancing can save real money, but it can also cost more than it saves if you rush in. This guide covers what refinancing means in New Zealand, what it costs, and how to work out whether it is worth it for you.
What refinancing means in New Zealand
Refinancing means replacing your current home loan arrangement with a new one. People use the word for two quite different things, and the costs and effort differ a lot between them.
Moving to a new lender
You take out a new loan with a different bank or lender, and it pays out your old one. The old mortgage is discharged from your title and a new one is registered. You go through a fresh credit assessment, there is usually a valuation, and a lawyer handles the paperwork. It is the bigger job, but it opens up the widest choice of rates and offers.
Restructuring with your current lender
You stay where you are and change how the loan is set up. You might move part of the balance to a different fixed term, add a floating or revolving credit portion, open an offset account, or negotiate a better rate. This is quicker and usually cheaper. If you are not borrowing more, there is often little reassessment.
How refixing differs
Refixing is the simplest version. When a fixed term ends, you pick a new term and rate for that portion of the loan. It is not a refinance in the formal sense, but it is the natural moment to look at the whole loan. Many people accept whatever rate the bank offers by default. Ask what it can do, then compare that with what other lenders are offering.
Common reasons to refinance
Here are the reasons we see most often:
Cash contributions and clawback
A cash contribution, sometimes called cash back, is a payment from the new lender when your loan settles. The condition is that you stay for a set period, often a few years. If you repay or refinance away before that period ends, the lender can ask for some or all of the money back. That is the clawback. If you received one from your current lender, leaving early may trigger a clawback bill, so add it to your costs. Always ask for the exact clawback period and how it is calculated.
What refinancing costs
The headline rate is only half the picture. Add up the following before you decide:
How break fees work in principle
When you fix a rate, the lender typically funds that loan based on its own cost of money for that term. If you leave early, the lender may lose out if rates have fallen since you fixed, because it now lends the money out at a lower rate. The break fee is designed to cover that loss over the remaining term. If rates have risen since you fixed, the fee is often small or zero. The exact calculation varies by lender, and lenders must disclose how it works. Ask for a written quote for your planned repayment date.
Practical tip: if your fixed term ends in a few months, ask your lender for a break fee quote and a "rate if I wait" comparison side by side. Often the cheapest move is to wait until the fixed term ends, then switch with no break fee.
Fixed, floating, revolving credit and offset accounts
Refinancing is also a chance to rethink how your loan is split. Most New Zealand borrowers hold several parts, each with its own rate and term.
Splitting across different fixed terms (for example, part for one year and part for two) spreads the risk of all your loan refixing at the same time.
Is it worth it? A worked example
The numbers below are hypothetical and chosen only to show the method. They are not current market rates or any lender's offer.
Say you have a $500,000 balance with 25 years left and it is repaid as principal and interest. Your current rate is 5.40% a year. Another lender is offering 4.90% for a two-year fixed term.
Now the costs. Suppose the one-off costs are a $1,000 legal and valuation bill, a $300 discharge fee, and a $700 break fee, totalling $2,000. Savings of about $3,500 less costs of $2,000 leaves around $1,500 in your favour over two years. That is worthwhile, though not life-changing.
Change one detail. If you also had a $3,000 cash contribution clawed back, your costs jump to $5,000 and the saving of $3,500 no longer covers them. You would be about $1,500 worse off over the term. Same rate gap, opposite answer.
A simple test: total savings over the fixed term, minus all switching costs. If the result is clearly positive, go on. If it is marginal, consider asking your current lender to match the lower rate, which costs you nothing.
Timing around fixed-term expiry
The best moment to refinance is usually when a fixed term ends, because there is no break fee on that portion. Start looking about 60 to 90 days before expiry. That gives you time to get approvals, get quotes and arrange settlement to fall on the maturity date. Many lenders can lock in a rate ahead of time, which protects you if rates rise while you shop around.
What lenders will reassess
A new lender will look at your situation again, even if nothing has changed for you. Expect them to ask about:
These rules mainly bite on new lending, and a straight refinance that does not increase your borrowing is often treated more leniently. If you are borrowing more, such as for a renovation, expect closer scrutiny. You can read about the current settings on the Reserve Bank of New Zealand website.
Pitfalls to avoid
Stretching the term
A new loan can reset the clock to 30 years. Your repayments look lower, but you can pay far more interest in total. If you refinance, ask for the term to match your remaining years, or keep paying at your old repayment level so you still finish on schedule.
Rolling short-term debt into a 30-year mortgage
Consolidating a car loan or credit card into your mortgage lowers the rate, but you could be paying for that debt for decades. A $15,000 car loan that would have been gone in four years can cost far more in interest when spread over 25 or 30 years. If you consolidate, consider a separate loan part with a shorter term, or make extra payments to clear that portion quickly.
How mortgage advisers are paid
In New Zealand, a mortgage adviser is usually paid by the lender, not by you. The lender typically pays a commission when the loan settles, and sometimes a smaller ongoing trail commission. If you repay or move the loan within a set period, the lender may claw some of that commission back from the adviser. This means the service often costs you nothing directly, but it is fair to ask how your adviser is paid and whether the structure could influence the advice.
Financial advice providers must give you disclosure information about their services, fees and any commissions or conflicts of interest. You should be able to see this before or when you receive advice. The Consumer Protection website explains your rights.
Key takeaways
If your fixed term is coming up or you are wondering whether a different structure would suit you, we are happy to run the numbers with you. Book a free consultation with Good Money and we will tell you plainly whether refinancing makes sense, or whether staying put is the better call.