If your low rate is coming to an end, it's a great time to review your options.

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If you’re like many Kiwis that are coming off a low fixed rate in the next few months, you might be starting to get concerned about how high your repayments will be. If this is the case, it could be a good idea to look at refinancing. 

Banks are offering some great incentives at the moment, specifically cashback, that could be a big help towards covering higher repayments. Some of the major banks are offering up to 1% cash back for moving your lending to them, so for instance, if you have an $800,000 home loan that would be $8,000 cashback.

So how does cashback help if you're taking on higher repayments you might ask?‍

Well let’s say you get $8,000 cash back when you move your lending to a new bank. You could use this amount to cover a number of months of the higher repayments, which could give you enough time to either a) create some savings in your budget to offset the higher rate or b) hold out until you could refix again at hopefully a lower rate.

On top of getting some cash in your pocket, there are other benefits to refinancing to help ease the pinch of higher repayments too:

• Consolidate high interest rate debt into your mortgage to save on repayments
  Interest on things like car loans and credit cards are always higher than your mortgage repayments, so if you consolidate these loans into your home loan it will help you pay them off much faster while also saving you heaps of money in the interim! Also only having one loan can make things just a but simpler from a budgeting perspective.

• Extend your loan to make your repayments smaller and maximise your cash flow
  When you refinance, you might have the option to extend your loan over a longer term which can create additional cash flow for you in the interim and give you some breathing room until interest rates go down again. For instance, if you have a $750,000 loan at 4.99% that had 25 years left, you would be paying roughly $4,380 per month. If you refinance your loan with a new bank over 30 years at a rate of 6.95% that’s only an increase of $585 per month compared to $897 that you would have been paying if you kept the term at 25 years.

• Refinancing is a great chance to get your loan structure right
  Take this opportunity to talk through your options with your Buddy Advisor and make sure you have the best loan structure in place for your financial goals. Sometimes it’s worth looking at putting a portion of your loan on interest only which can help soften the blow of moving to a higher interest rate, until you’re able to come up with some savings, your financial situation changes or you can refix at a lower rate. It’s always worth discussing the pros and cons of this option with your adviser however, as interest only loans do cause you to pay more in the long run, but sometimes can be a great short term solution depending on your situation and needs. 
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One last thing to take into account is that since the new regulations have come into effect last year, there are a few more boxes to tick which is why it certainly pays to have your Buddy advisor on your side. We take care of all the paperwork, are expert negotiators on your behalf and can get you the best deal from the major banks or other lenders. Remember our service is FREE! Our team is paid by the banks and are on salaries - not commissions - so we can focus on the best lender for your needs, not the biggest pay out. Click here to book a chat with our team.