Mortgage Broker NZ

Refinancing Your Mortgage

When to switch lenders, how break costs and cashbacks work, and what the process involves — explained plainly.

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When does refinancing make sense?

Refinancing means replacing your current mortgage with a new one — either with the same bank or a different lender. The most common times people refinance:

Fixed rate expiry

The ideal time to switch lenders — no break costs apply when your fixed term ends. This is when competition for your business is strongest.

Better rate available

If rates have dropped materially since you fixed, the savings over the remaining term might outweigh the break cost. Get the numbers before deciding.

Cashback opportunity

Banks compete for mortgages. Cashback offers can cover switching costs and still leave you ahead — but clawback terms matter.

Restructuring needed

Changing your loan structure — splitting fixed/floating, adding revolving credit, or adjusting the term — is often easier when refinancing.

Break costs — what they are and when they apply

If you're on a fixed rate and want to break it early, your bank will charge a break cost (also called an early repayment charge). The calculation is based on the difference between your contracted rate and the current wholesale funding rate for the remaining term.

Key things to know about break costs

  • →Break costs can range from $0 to tens of thousands — they are not predictable without getting a quote from your bank.
  • →If interest rates have risen since you fixed, your break cost may be zero or minimal (because the bank can re-lend the money at a higher rate).
  • →If rates have fallen, break costs will be higher — the bank is losing out on the rate differential.
  • →Always get your break cost figure in writing from your current bank before making any decisions.
  • →Break costs are not applicable when your fixed term expires — another reason to plan ahead.

Cashbacks and what to watch

A cashback is money paid by the new bank when you bring your mortgage to them. It's designed to offset switching costs like legal fees. Cashbacks are typically 0.5–1% of the loan amount.

However, most cashbacks come with a clawback clause: if you repay the loan in full or refinance again within a specified period (usually 3–4 years), you must repay a portion of the cashback. Before accepting a cashback, understand the clawback conditions and make sure you plan to stay with that lender for long enough to keep it.

Example: A 0.8% cashback on a $600,000 loan = $4,800 received at settlement. If you refinance again within 3 years, you may owe back a pro-rated portion of that $4,800.

What the refinancing process involves

1. Get your break cost

Ask your current bank for the break cost in writing. This determines whether it makes sense to refinance now or wait for your fixed term to expire.

2. Compare lenders

Your adviser will compare the rates and cashbacks available from alternative lenders against what your current bank offers for renewal.

3. Apply to the new lender

The new bank assesses your application — income verification, bank statements, and property valuation (if required). Most straightforward refinances are approved within 1–2 weeks.

4. Legal discharge and registration

A lawyer handles the discharge of your existing mortgage and registration of the new one. Costs are typically $800–1,500 and may be partially or fully offset by the cashback.

5. Settlement

The new bank pays out the existing lender. You are now on the new lender's mortgage with the agreed rate and structure.

Not sure if refinancing is right for you?

Jeremy can compare your current position against what's available in the market and give you an honest assessment — including when it might be better to wait.

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Common questions

When does it make sense to refinance?
The most common reasons to refinance are: your fixed rate is coming up for renewal and you want to compare rates from other lenders; you want to restructure your mortgage (e.g. move to interest-only, change the term, or split between fixed and floating); your circumstances have changed and you want to consolidate debt or access equity; or a cashback offer from another bank is attractive enough to justify switching costs. Whether refinancing is worthwhile depends on your break costs, the rate difference, cashback available, and how long you intend to hold the loan.
What are break costs?
Break costs (also called break fees or early repayment charges) apply when you exit a fixed rate mortgage before the end of its term. Banks calculate break costs based on the difference between your contracted rate and the current wholesale market rate for the remaining fixed period. If market rates have dropped significantly since you fixed, break costs can be substantial — potentially tens of thousands of dollars. If market rates have risen, break costs may be minimal or zero. You should always get your break cost in writing from your current bank before deciding to refinance.
What is a cashback and how does it work?
Many banks offer a cashback incentive to attract borrowers switching their mortgage. Cashbacks are typically a percentage of the loan amount (commonly 0.5–1%) paid to you at settlement. For example, on a $500,000 loan a 1% cashback would be $5,000. However, cashbacks often come with a clawback clause — if you pay the loan off or refinance again within a certain period (typically 3–4 years), you may have to repay some or all of the cashback. Make sure you understand the clawback terms before signing.
What does the refinancing process involve?
Refinancing involves a new credit assessment from the incoming lender (similar to your original application), which includes verifying your current income, bank statements, and existing liabilities. The incoming bank then requires legal work to discharge the existing mortgage and register the new one — typically costing $800–1,500 in legal fees (sometimes covered by the cashback). The whole process usually takes 4–8 weeks once you have decided to proceed. Your adviser coordinates most of the process on your behalf.
Can I refinance to a different loan structure?
Yes. Refinancing is a good opportunity to restructure your mortgage. For example, you might move from a single fixed loan to a split structure (part fixed, part floating or revolving credit), increase or decrease your loan term, switch between principal-and-interest and interest-only (if eligible), or consolidate multiple loans into one. An adviser can help you decide what structure best suits your current goals.
Is it better to stay with my current bank or switch?
Loyalty does not always pay in the mortgage market. Banks compete for new business and sometimes offer better rates or cashbacks to borrowers switching from another bank. However, your current bank may match or beat a competitor's offer if you have a good relationship and a strong application. An adviser can negotiate with both your current bank and alternative lenders simultaneously, which is something most borrowers cannot easily do on their own.

Related

→Current NZ mortgage rates→Mortgage repayment calculator→Mortgage guides→Get refinancing advice