Refinancing picks up in New Zealand thanks to lower interest rates

But advisers say it might not always be worth it to the effort

Refinancing picks up in New Zealand thanks to lower interest rates

The practice of refinancing a home loan to get a better deal continues to gain traction in New Zealand thanks to the country's current low interest rates. 

The official cash rate fell to a new low of 4.25% — the lowest it's been since November 2022 — last spring. And the market is even more optimistic that the Reserve Bank of New Zealand will make further cuts at its Feb. 19 meeting. 

Either way, the low rates make the cost of capital more appealing, causing more borrowers to inquire about the possibility of refinancing their homes, said Alexander McAlpine, a mortgage adviser at Auckland-based Vega Mortgages. 

"If you refinance you can get a better deal," McAlpine told the New Zealand Adviser. In particular, one major incentive for refinancing is cash backs.

The borrower could get $10,000, $13,000; it depends on the size of the loan. “The bigger the loan size the bigger the percentage of the cash back," McAlpine explained. "But some banks aren't paying cash backs, especially if they're staying in the same bank." 

Worth the hassle

But some say it's not always worth it. Campbell Hastie (pictured), owner and mortgage adviser at Auckland-based Hastie Mortgages, refinancing is not always the best option. 

"Refinancing is an opportunity. But it's not always the case that the change is a better deal," he said. "It has to make sense when you weigh up the numbers, and a lot of times it doesn't make sense. There are the transaction costs, the legal costs. Sometimes there's a breaker cost. The cost of the refinancing may mean it's better for them to stay. No-one should move if it's only a 0.1% change [in rate]. 

"Also, you have to get the approvals from the bank," he continued. "The banks might not approve them. And if they don't meet the lending criteria, it doesn't matter."

McAlpine agreed. "What the bank advertises isn't always the best deal," he said. "If we feel the deal is not good, then we give the borrower options for other banks. We cover what's in the market and then negotiate on their part."

Other benefits

Regardless of refinancing, the lower interest rates have other benefits. First and foremost, it's helping more people enter the market. 

"We're starting to see a pickup in the appetite to purchase a property, to take on that debt with the lower interest rates," Hastie said. "That wasn't always the case a few years ago. But with lower interest rates people are more incentivised to borrow. By the end of the year, I think we're going to see more listings. The lower interest rates are making it affordable for all classes to buy."