Refinancing: Here are misconceptions you should know

At any moment, you can refinance into a new mortgage agreement. Despite if you have to pay a fee to quit your current agreement early, you could end up saving money in the long run.

You don’t have to borrow more money if you don’t need to, and you might save hundreds or even thousands of dollars every year on your loan repayments.

However, there are several refinancing myths. This article attempts to debunk them and assist you in determining whether it is the correct step for you.

It’s expensive to refinance

The goal of refinancing is to save money, not to spend more. So, unless you significantly increase your debt, you should always notice a decrease in your monthly mortgage repayments.

However, there are always expenses associated with refinancing. That is why it is critical to consider the entire cost of a refinancing agreement, which includes adding these fees to the interest you will pay throughout the period.

Switching to a contract with considerably higher fees may prove to be less expensive than remaining with your existing arrangement, especially if you are paying your lender’s standard variable rate (SVR). Alternatively, you may discover that a loan with a little higher interest rate and fewer fees and penalties is a better fit for you.

Numerous lenders will pay for your legal expenses as well as the cost of having your property appraised. So, if you choose one of these offers, the only price you’ll have to pay is the mortgage arrangement fee.

I should look for the refinance deal with the lowest interest rate

Set-up costs, such as a mortgage arrangement charge which are common when refinancing. As a result, it is critical to consider these fees while shopping for the best mortgage package. Packages with the lowest interest rates sometimes have the highest set-up expenses.

While paying a significant cost to get a lower rate may be worthwhile if you have a large mortgage, if you simply need to borrow a little amount, a mortgage package with a slightly higher interest rate but a lower cost may typically work out to be cheaper overall.

If you are concerned about interest rates rising, you may want to fix your mortgage at a little higher rate instead of refinancing to a tracker agreement, which is now low but may become more expensive in the future.

I can only refinance once my current deal has finished

You have the option to refinance at any time. The trick is to ensure that you will save money by doing so. If you have a fixed rate, a reduced rate, or a tracker deal that is about to expire, you may frequently save money by refinancing three (or in some circumstances up to six) months before it expires – that means you won’t waste time on an uncompetitive SVR.

However, if you have to pay a hefty early repayment fee or penalty to leave your existing arrangement, you will need to locate a much cheaper offer to make it a better total bargain.

Because early repayment penalties usually reduce over time, you could be better off waiting another year to refinance to a better offer. If you’re stuck in a bad contract for a long time, ask your lender if you may pay a lesser early repayment fee to transfer to one of its better options.

I can’t refinance because my financial circumstances have changed

Simply because you are earning less than previously does not exclude you from refinancing. Unless you want to raise the size of your loan, which may be impossible in certain situations, the lender will base your affordability on a lesser amount – and maybe reduce interest rates as well. As a result, even if your household income has decreased, you may be able to refinance to a better offer.

Conversely, if you have just lost your job, you may discover that refinancing is not a possibility at this time. If you’re having trouble making your monthly mortgage payments, talk to your current lender. And if you’re thinking about moving, our “How much can I borrow?” calculator could come in handy.

If you think the time to refinance your mortgage is approaching, contact us and we can ensure this process is quick and worthwhile.

Right things to with financing during Covid-19

The pandemic continues to disrupt our professional lives, our children’s lives, and our financial life. That being said, there is a lot we can do right now: here are some things you can do right away in terms of finance.

Avoid decisions based on fear

We will get through this together, so don’t worry. Emotional situations can lead to bad financial judgments, so seek the support you need while making financial decisions during an urgent situation. Take the time to gather information and guidance about what you want to accomplish.

Find out what financial help is available

The government is taking steps to help the economy, including paid leave and self-isolation, salary subsidies, and business cash flow and tax relief. More information may be found at the official COVID-19 government response website.

Make a crisis money plan

Making a financial plan is extremely crucial during an emergency. Financial difficulties may create significant problems for you and your family, so putting a plan in place can help offer you sense of peace.

  • Consider a scenario in which your income is reduced. To effectively manage your money, you must first determine your incomings and cash outflows.
  • Concentrate on your current “needs” and eliminate any superfluous “desires.”
  • Assign a task to each and every dollar. This implies that you select how your money will be spent and prioritise what is most essential.
  • Put any excess funds you have – even if it’s only $5 or $10 – into a safety nett.

Find out all your options before taking on more debt

If you don’t have emergency savings, consider setting away some money each time you are paid if you can. Based on how the crisis develops, you may find yourself needing to rely on your safety nett sooner than planned.

If you sense you need to borrow more funds to get by, it’s critical that you don’t go for the cheapest option. You may be considering a KiwiSaver withdrawal and applying for ‘significant financial difficulties,’ but you want to be sure it’s the last solution. It’s critical to understand that your KiwiSaver funds can typically be used to cover day-to-day costs but not to pay off debt. Tapping your KiwiSaver is a major decision that will impact your future in some manner, so you want to be sure it’s a good one.

A relatively brief payday loan online or a KiwiSaver emergency withdrawal might spring to mind immediately, but other choices are likely to be more effective: government assistance, short loan or mortgage deferment, or refixing your loan to a lower interest rate with more affordable payments. The aim is to go through with as little debt as possible.

Can’t make repayments? Talk to your lender as early as possible to make arrangements

The sooner you contact your bank or lender, the safer. You might be amazed at how eager they are to collaborate with you and your mortgage. The earlier you contact them, the more equipped they will be to assist you in dealing with finance related stress. And besides, they have to cope with this all the time.

Depending on the circumstances, your bank may: Temporarily halt loan payments. It’s critical to understand that even if your payments are suspended, the interest will continue to accumulate – a loan deferral increases the cost of the debt.

Here are some tips to consider

  • Move you to interest-only payments
  • Restructure business loans
  • Consolidate loans to make repayments more manageable
  • Provide short-term funding
  • Stay safe from COVID-19 scams

Crises tend to bring out the best in everyone, but if you look closely, you may also see the very worst. Frauds and scams involving Covid-19 are proliferating like deadly mushrooms, particularly online, so make careful to double-check every phone call, link, and email you get — it might be a forgery. To ensure that anything is legitimate, make a separate call to a public number when it comes to dealing with funds.

Talk to an expert financial advisor to ensure that any step you take to help your emergency situation does not have many risks involved with it. Contact us and we can help you manage your funds in these difficult times.