Why now might be the perfect time to refinance your mortgage

Refinancing your mortgage is a decision that should be made carefully, considering both the current economic environment and your personal financial situation. With the recent decrease in the Official Cash Rate (OCR) from 5.5% to 5.25%, many homeowners are asking if now is the right time to refinance. There are signs that inflation is getting under control and the Reserve Bank has indicated that there may be one more cut to the OCR before the end of 2024. 

So what does this actually mean? The OCR is a tool used by the Reserve Bank to influence economic activity. By lowering the OCR, the Reserve Bank encourages borrowing and spending by making it cheaper for banks to lend money. This typically results in lower interest rates on loans, including mortgages.
The recent decrease in the OCR is part of the Reserve Bank's efforts to stimulate our sluggish economy. For homeowners, this could mean that interest rates on mortgages might stay low for the rest of 2024 and into 2025. If you’re currently on a fixed-rate mortgage, refinancing to a lower rate could help you save money over the life of your loan.
Is now the right time to refinance? Deciding whether to refinance involves considering several factors. The most immediate benefit of refinancing is the potential to secure a lower interest rate, which could reduce your mortgage repayments. Even a slight reduction in your interest rate can lead to significant savings over time.
Another reason to consider refinancing is to change the structure of your loan. For example, you might want to have parts of your loan on different fixed rates so that you can benefit from locking in lower rates for the foreseeable future.  
However, there are costs associated with refinancing. This includes break costs/early repayment fees and legal fees. It is critical to calculate whether the savings from a lower interest rate outweigh these upfront costs.
Crystal ball-gazing. As we look ahead to the rest of 2024 and into 2025, the future of interest rates will largely depend on how the New Zealand economy performs. If inflation remains under control and the economy continues to grow, we may see interest rates stay low or even decrease further. However, if inflation picks up or the global economic environment changes, rates could rise again.
For those considering refinancing, this means that now could be an opportune time to act. Locking in a lower rate while it’s available could protect you against future rate increases. On the other hand, if rates drop further, those on variable rates or who wait to refinance could benefit even more.
A mortgage broker or financial advisor can help you navigate the complexities of refinancing and determine the best course of action. With the right strategy, refinancing could be a smart financial move that puts you in a better position for the future.

Schnauer & Co,
1 Shea Terrace, Takapuna
09 486 0177
schnauer.com


Issue 156 September 2024