Changing Your Mortgage Structure Mid-Term and When to Do It

Why Would You Change Your Mortgage Structure Mid-Term?

Most Kiwis lock in their home loans for a fixed period, typically ranging from six months to five years. But what happens when your circumstances change, or you spot a better deal elsewhere? You might be wondering whether it's worth shaking things up before your fixed rate expiry.

Changing your mortgage structure mid-term - whether that means switching banks, accessing equity, or moving from a fixed rate to a floating rate - isn't always straightforward. However, it can be a smart financial move when done at the right time and for the right reasons.

Let's explore when it makes sense to refinance or change lender before your term is up, and what you need to consider along the way.

Common Reasons to Switch Your Mortgage Structure

Christchurch homeowners typically consider a mortgage review and potential restructure for several reasons:

1. Lower rates elsewhere - You've found a lender offering a significantly lower rate than what you're currently paying
2. Debt consolidation - You want to consolidate debt by rolling credit cards, personal loans, or car finance into your mortgage
3. Equity release - You need to access equity for renovations, investment property, or other purposes
4. Cashback offers - A refinance deal includes a substantial cashback that offsets any break fees
5. Changing repayment needs - You want to reduce repayments due to changing financial circumstances

Understanding Break Fees and Early Repayment Costs

Before you rush to switch banks, you need to understand the potential costs involved. When you break a fixed-rate mortgage early, lenders typically charge what's known as a break fee or early repayment cost.

These fees compensate the lender for the interest they'll lose when you leave early. The amount varies depending on:

• How much time remains on your fixed term
• The difference between your current rate and current market rates
• The amount you're repaying early

If interest rates have risen since you fixed your loan, the break fee might be minimal or even zero. However, if rates have dropped, the break fee could be substantial - sometimes running into thousands of dollars.

A mortgage adviser can run a refinance calculator to determine whether the potential savings from a lower rate or cashback will outweigh the break fee.

When the Numbers Actually Stack Up

Changing your mortgage structure mid-term makes financial sense in several scenarios:

Significant rate differences: If you can secure a rate that's 0.5% or more lower than your current rate, and you have a large loan balance, the savings on interest over time might justify paying a break fee.

Cashback incentives: Some lenders offer cashback deals when you refinance with them. If the cashback is substantial enough to cover your break fee and refinance costs (including legal fees and valuation), you could come out ahead.

Accessing equity for investments: If you need to top up your mortgage to access equity for a property investment or business opportunity, the potential returns might far exceed the cost of breaking your fixed term.

Consolidating high-interest debt: Moving credit card debt or personal loans into your mortgage at a much lower rate can save you considerably, even after accounting for break fees.

The Switch Process: What to Expect

When you decide to change lender or restructure your loan, here's what typically happens:

1. Initial assessment - A refinance specialist reviews your current mortgage, goals, and financial situation
2. Rate comparison - You'll compare rates from multiple lenders to find competitive offers
3. Break fee calculation - Your current lender calculates the exact early repayment cost
4. Refinance approval - You submit an application to the new lender (or current lender for restructuring)
5. Valuation - The property may need to be valued
6. Legal process - Lawyers handle the discharge and new mortgage documentation
7. Settlement - The new loan settles and your old mortgage is repaid

The entire process typically takes 3-6 weeks, depending on various factors.

Alternatives to Breaking Your Fixed Term

If the break fee is prohibitive, consider these options:

Wait until fixed rate expiry: Mark your calendar for when you need to re-fix and start shopping around 60-90 days before that date. You can switch banks at this point without penalty.

Split your mortgage: If only part of your loan is fixed, you might refinance the floating portion or any portion coming up for renewal while leaving the rest untouched.

Port your mortgage: Some lenders allow you to transfer your existing fixed rate to a new property if you're moving house.

Questions to Ask During Your Mortgage Health Check

When conducting a loan review with your mortgage adviser, make sure you get answers to:

• What's my exact break fee right now?
• How much can I save by switching to a new rate?
• What are all the refinance costs involved (legal fees, valuation, etc.)?
• Are there any special rates or cashback offers available?
• Would splitting my loan between 1 year fixed, 2 year fixed, and floating portions make sense?
• Can I access equity without breaking my fixed term?
• What happens if interest rates change in the coming months?

Making the Right Choice for Your Situation

There's no one-size-fits-all answer when it comes to refinancing or changing your mortgage structure mid-term. What works for your neighbour might not work for you.

The key is to do the calculations, understand all costs involved, and think about your medium to long-term financial goals. Sometimes paying a break fee now positions you for substantial savings down the line. Other times, patience until your fixed term ends is the smarter play.

Working with a refinance specialist who understands the Christchurch property market and has relationships with multiple lenders can help you navigate your options and secure a better deal when the timing is right.

Whether you're looking to save on interest, access equity, or restructure your loan to suit changing circumstances, getting professional guidance ensures you're making an informed decision.

Ready to find out if changing your mortgage structure makes sense for you? Call one of our team or book an appointment at a time that works for you. We'll run the numbers, compare your options, and help you determine the right strategy for your financial future.