In last week’s blog, we talked about three reasons why you should refinance your mortgage. Firstly, by refinancing, property investors can apply for another short-term interest-only loan at their new bank. This is one of the best ways to reduce your mortgage payments, and it gives property investors the ability to pay off any of their other smaller debts faster. Secondly, you can refinance and use loan products, such as offset accounts and revolving credit facilities, to help you pay off your mortgage faster and save on interest. Thirdly, refinancing your existing mortgage can help you improve your borrowing capacity if you are thinking about increasing your property portfolio. Today, we’re going to talk about three more reasons why you should consider refinancing your mortgage.

Why should you refinance your mortgage?

Video Timeline

1. How can refinancing help you avoid having one bank that controls all of your properties? -- 00:39

2. How can refinancing help you cover the cost of a restructure? -- 02:32

3. How can refinancing help you maximize your LVR (loan-to-value ratio) on some loan types? -- 03:19

1. How can refinancing help you avoid having one bank that controls all of your properties?

Some property investors only use one lender when they want to buy another investment property. They might assume that this mortgage strategy would make the loan application easier and managing the loan more flexible, compared with the strategy of using different lenders.

These property investors often assume that individual loans only relate to specific properties. If their financial situation changes for the worse, and they need to sell their property to obtain some emergency cash to cover other debts, they will lose their control. This is because banks and property investors have a different view. From the bank’s perspective, any new lending is attached to all of the investor’s securities held by the bank. When you sell a property, the bank often reviews your financial situation and your LVR (loan to value ratio). The bank have the right to ask you to repay them the full proceeds from your property sale. It might negatively impact you if this amount is much higher than your borrowing amount.

Some investors are not aware that they should talk with their existing lender prior to selling their property. All of a sudden, they find themselves in a situation where lawyers approach the bank for a discharge. Unfortunately, the bank takes control of the process in this circumstance.

By refinancing your mortgages, you will deal with different lenders. This means that there is not one bank who is in sole charge of all of your properties. This mortgage strategy helps you sell a property without the risk that the bank will take all of the sale proceeds. It makes the discharge of a mortgage easy and flexible. 

2. How can refinancing help you cover the cost of a restructure?

By creating a trust for asset protection, you can transfer your properties into the name of the trust, rather than holding them in your personal name. This is one of the examples of restructuring. If you are thinking about restructuring, you should not only consider the potential advantages of doing so, but also ensure that the benefits outweigh the costs.

The costs include:

• Legal costs when signing new mortgage documents;
• The potential one-off mortgage break fee;
• Other incidental costs.

If you refinance though, you may receive a cash incentive from your new bank, which could help counteract your costs.

3. How can refinancing help you maximize your LVR (loan-to-value ratio) on some loan types?

According to the LVR lending restrictions that came into effect on 1 January 2019, property investors require a 30% deposit. However, this deposit rule is not applicable to some types of loan. Some New Zealand banks require a deposit of more than 30%, if an apartment is smaller than 50sqm. Their required loan-to-value ratio in this instance can vary between 50% and 70%. Also, terraced houses that are connected to more than five units are exempt from loan-to-value restrictions. This is because some New Zealand banks classify these specific types of loan as high-risk.

But, the good news is, not all New Zealand banks have the same view. At Prosperity Finance, we have good relationships with all of New Zealand’s major banks, so we know which bank is prepared to go the extra mile for you. By refinancing, you could maximize your loan-to-value ratio on some specific types of loan.

In a nutshell, whether you’re a New Zealand property investor or a regular home buyer, refinancing might work well for you. You should bear in mind that receiving a cash incentive from your new bank or securing a low interest rate shouldn’t be the only reason you refinance your mortgage. It all depends on your unique situation and an understanding of the pros and cons.

As experienced mortgage advisors, we adopt a strategic outlook to help you make an informed decision. Get in touch with us today by calling 09 930 8999 to find out how we can help you refinance.

Disclaimer: The content in this article are provided for general situation purpose only. To the extent that any such information, opinions, views and recommendations constitute advice, they do not take into account any person’s particular financial situation or goals and, accordingly, do not constitute personalised financial advice. We therefore recommend that you seek advice from your adviser before taking any action.

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Phone: 09 930 8999 

Email: support@profin.co.nz

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