How to refinance without tears

This article was originally published on Stuff.co.nz on 4 June 2014.

Got a home loan and looking for a better deal? Believe it or not, that makes you extremely attractive to banks.

While the Reserve Bank has placed restrictions on the amount of new high LVR (loan to value ratio greater than 80 per cent) lending banks can do, existing high LVR home loans that are refinanced between lenders are exempt, subject to certain conditions.

So, while competition between the banks has always been fierce in the home loan refinance market, deals on offer to people with high LVR home loans has reached new heights.

This means the refinancing market has become the new battleground as lenders seek to grow their home loan portfolios against the backdrop of current Reserve Bank LVR restrictions, says Vince Clark, head of home lending and term deposits at ASB.

Competitive markets are good news for customers - so don't be afraid to ask for the best possible deal. But, before you do, there are a few things to consider.

Think about what you need
Think about what you want from your mortgage, has it been working for you so far? How do you want to structure your repayments - do you want certainty or flexibility, or a mix of both?

Have your circumstances changed since you took out your original loan, or are they likely to change in the near future?

A new job? Kids? Renovations? These types of lifestyle changes are all good reasons to ensure you have a home loan that is working for you.

Once you've sorted out the basics of what you want, find out about the home loan products that are available plus the latest special rates or deals from the various providers.

"Knowledge is power, so use it to your advantage," says Clark.

Talk it through
Once you've worked through how you want to structure your mortgage and have an idea of current offers, talk to an expert at the bank or to a broker and discuss what products might suit you.

There's a whole world out there beyond the often favoured fixed rate table loan, so it's worth talking through your options with a professional. That way you can explore possibilities you might not feel confident considering on your own, such as a revolving home loan.

"Get yourself in front of an expert who can understand what your current circumstances are and what they might be in the future so they can advise on the most suitable products for you," Clark says.

Start with the familiar
Don't jump ship before talking to your current provider to see what they can offer. "They know your business better than anyone," says Clark.

The conversation you have with your bank about refinancing is "a key moment of truth in the relationship," he says.

The moment will either hurt - in which case you'll likely look elsewhere - or it will be productive and you'll have a deal you're happy with.

Minimise switching pain
If you decide to change lenders, chances are you'll want to move more than your mortgage. Be prepared to shift your everyday banking, automatic payments, credit cards, insurances etc if you want the best deal possible from your new lender.

Clark says if you're going to switch your home loan, then look for a bank that offers a switching service to help minimise the pain.

"Don't be taken in just because of a great rate or other incentive to switch home loan providers unless that provider takes much of the effort out of switching for you."

TOP TIPS

- Think hard about what you want from your home loan.
- Do some homework first and get familiar with what's on offer in the market.
- Talk to an expert about your options.
- Give your current lender a chance before jumping ship.

Click here to find out more about getting a home loan with ASB.