When it comes to optimizing your home loan in New Zealand, you'll often hear two terms used interchangeably: refinancing and restructuring. While both strategies can help you achieve better mortgage outcomes, they're actually quite different processes with distinct advantages, costs, and circumstances where each makes the most sense.
Understanding the difference between refinancing and restructuring is crucial for making informed decisions about your mortgage. This comprehensive guide will clarify what each option involves, when to choose one over the other, and how to determine the best path forward for your financial situation.
Refinancing involves completely replacing your existing home loan with a new mortgage, typically from a different lender. When you refinance, you're essentially paying off your current mortgage in full using funds from the new loan, then starting fresh with new terms, conditions, and often a new interest rate.
The refinancing journey begins with shopping around for better mortgage deals from various lenders across New Zealand. You'll submit a full mortgage application to your chosen new lender, complete with income verification, credit checks, and property valuation. Once approved, your new lender provides the funds to pay out your existing mortgage, and you begin making payments under your new loan terms.
This process involves discharging your old mortgage and registering a new one, which requires legal work and documentation. Your lawyer will handle the transfer of security over your property from your old lender to your new one, ensuring all legal requirements are met.
Refinancing always involves changing lenders, though you may refinance with your existing bank if they offer substantially different products. It requires a complete new application process with full documentation and assessment, including updated property valuations and income verification. You'll typically incur various costs including application fees, legal fees, valuation costs, and potentially break fees if you're exiting a fixed-term loan early.
The new loan may have completely different terms, structure, and features from your previous mortgage. This fresh start allows you to access different loan products, potentially split your loan differently between fixed and floating rates, or change your loan term entirely.
Restructuring, by contrast, involves making changes to your existing mortgage without switching lenders. You're working with your current bank to modify aspects of your loan to better suit your evolving needs or to take advantage of changed circumstances.
Restructuring is generally simpler and faster than refinancing. You approach your existing lender and discuss what changes you'd like to make to your current loan. This might involve switching between fixed and floating rates, changing your loan term, splitting your loan differently, accessing additional funds against your equity, or consolidating other debts into your mortgage.
Because you're staying with the same lender, the process requires less documentation than a full refinance application. Your bank already has your information on file and a history of your repayment behavior, which simplifies the assessment process.
Restructuring keeps you with your current lender, maintaining your existing banking relationship. The process is typically faster and involves less paperwork than refinancing, often taking just days or weeks rather than months. Costs are generally lower since you're not changing lenders, though some fees may still apply depending on the changes you're making.
You're working within the constraints of your current lender's products and policies, which means you're limited to whatever options your existing bank offers. However, this simplicity can be advantageous when you just need minor adjustments rather than a complete overhaul of your mortgage.
Understanding the practical differences between these two approaches will help you determine which option suits your situation best.
The most obvious difference is that refinancing means moving to a new lender, while restructuring means staying with your current one. This distinction impacts everything else about the process, from complexity to cost to the range of options available to you.
When refinancing, you're opening the door to the entire New Zealand lending market. You can compare offers from all the major banks, second-tier lenders, credit unions, and specialist mortgage providers. This competition often results in better rates and terms, as lenders compete for your business.
With restructuring, you're limited to what your current bank can offer. While this restricts your options, it also means you can leverage your existing relationship and potentially negotiate better terms based on your loyalty and repayment history.
Refinancing requires a comprehensive application process similar to when you first purchased your home. You'll need to provide current income documentation, bank statements, proof of identity, details of all assets and liabilities, and consent to credit checks. The new lender will also arrange a property valuation to confirm your home's current market value.
Restructuring involves a much simpler process. Your bank already has most of your information, understands your financial situation, and has a track record of your mortgage repayments. While they may request updated income information for significant changes, the documentation requirements are far less extensive.
The refinancing process typically takes between four to eight weeks from application to settlement, though this can vary depending on how quickly you provide documentation and how busy lenders are. You'll need to coordinate with lawyers, wait for property valuations, and go through the full approval process.
Restructuring can often be completed in one to three weeks, and sometimes even faster for simple changes. If you're just switching from fixed to floating at the end of your term or making minor adjustments, the process might take only a few days.
Refinancing comes with substantial upfront costs. Application fees typically range from two hundred to eight hundred dollars, legal fees often cost between five hundred to fifteen hundred dollars, and property valuations can add another three hundred to one thousand dollars to your costs. If you're breaking a fixed-term mortgage, break fees could add thousands more depending on market conditions and your remaining term.
Restructuring generally involves lower costs. You might pay small administration fees for certain changes, typically ranging from fifty to three hundred dollars, and potentially break fees if you're changing from a fixed to floating rate before your term ends. Legal fees are usually minimal or nonexistent since you're not changing lenders.
Refinancing offers access to the best available rates in the entire market, which could result in significant long-term savings. You can access features and products not available from your current lender, and you have leverage as a new customer since banks typically offer their best rates to attract new business. Additionally, refinancing provides an opportunity to fundamentally restructure your entire mortgage approach.
Restructuring provides quick access to different products within your bank's range, allows you to maintain your existing relationship and any benefits that come with it, and involves lower upfront costs and less hassle. It's ideal for making tactical adjustments without the full commitment of changing lenders.
Certain situations clearly favor refinancing over restructuring, particularly when substantial savings or major changes are needed.
If other lenders are offering interest rates substantially lower than what your current bank can provide, refinancing makes financial sense. Even a difference of half a percent can translate to thousands of dollars in savings annually, which can easily outweigh the upfront costs of refinancing.
Before committing to refinancing, calculate your break-even point by dividing your total refinancing costs by your annual interest savings. If you'll recoup your costs within two to three years and plan to stay in your home beyond that, refinancing is likely worthwhile.
Some homeowners find their bank unwilling to match competitive rates available elsewhere. If you've approached your current lender about better terms and they've declined or offered only marginal improvements, refinancing opens up the entire market to you.
Banks sometimes take loyal customers for granted, assuming they won't go through the hassle of refinancing. If your bank is counting on your inertia, it's time to explore other options.
Different lenders specialize in different loan features. Perhaps you want an offset account, redraw facility, flexible repayment options, or the ability to make substantial extra payments without penalties. If your current bank doesn't offer the features that would benefit your situation, refinancing to a lender who does can significantly improve your mortgage experience.
While you can sometimes consolidate debt through restructuring with your current bank, refinancing often provides better options for substantial debt consolidation. Other lenders may be more flexible about the amount you can borrow or offer better rates on the consolidated total.
Significant life events like divorce, inheritance, career changes, or business ventures might require more substantial mortgage changes than restructuring can accommodate. Refinancing gives you a complete fresh start with a loan structure that matches your new circumstances.
Restructuring is often the smarter choice when you need flexibility without the cost and complexity of changing lenders.
When your fixed-rate period concludes, restructuring is usually the path of least resistance. If your bank offers competitive rates at renewal time and you're satisfied with their service, staying put avoids the hassle and expense of refinancing while still allowing you to secure a good rate for your next term.
This is also an ideal time to split your mortgage between fixed and floating rates, adjust your loan term, or make other tactical changes without incurring the full costs of refinancing.
If you've been a loyal customer with a strong repayment history, your bank may offer you preferential rates or special consideration that new lenders won't match. Long-standing customers sometimes access relationship rates or package discounts that make staying put more attractive than refinancing.
If the best rate you can find elsewhere is only marginally better than what your current bank offers, the time, effort, and cost of refinancing likely outweigh the modest savings. A difference of just one or two basis points might not justify the refinancing process.
When you need to access home equity quickly for time-sensitive opportunities or urgent expenses, restructuring with your existing bank is typically much faster than refinancing. Your bank can often approve equity release within days rather than the weeks required for refinancing.
If you intend to sell your property within the next year or two, refinancing costs might not be recouped before you sell. Restructuring allows you to optimize your current situation without the substantial upfront investment that refinancing requires.
Not everyone wants to deal with the complexity of refinancing, even if it might save some money. If you value simplicity and convenience, and your current mortgage is reasonably competitive, restructuring provides a straightforward way to adjust your loan without the extensive process of refinancing.
Interestingly, many savvy New Zealand homeowners use both strategies at different times. You might restructure your mortgage periodically with your current bank to maintain optimal terms, then refinance every few years when market conditions make it worthwhile or when your bank stops offering competitive rates.
This hybrid approach balances the benefits of both strategies. You avoid the constant churn of refinancing while still taking advantage of major opportunities when they arise. Consider restructuring as your default approach for minor adjustments and refinancing as your strategic option when substantial gains are available.
Choosing between refinancing and restructuring depends on your specific circumstances, financial goals, and the current lending environment. Start by assessing what you want to achieve with changes to your mortgage. Are you primarily seeking lower interest rates, different loan features, access to equity, or simplified debt management?
Next, compare what's available. Get quotes from multiple lenders to understand the best refinancing options, then discuss what your current bank can offer through restructuring. Calculate the true costs of each option and the potential savings or benefits. Consider not just immediate financial impacts but also convenience, timing, and how each option aligns with your broader financial strategy.
Whether you choose refinancing, restructuring, or a combination of both strategies over time, having expert guidance can help ensure you make the best decision for your unique situation. The mortgage landscape in New Zealand is complex and constantly evolving, with different lenders offering different products, rates, and features.
At Luminate Financial Group, we help homeowners across New Zealand navigate these decisions every day. Our experienced mortgage advisers can assess your current situation, explain your options clearly, and help you understand the true costs and benefits of both refinancing and restructuring. We'll do the heavy lifting of comparing rates and negotiating with lenders, whether that's with your current bank or with new lenders across the market.
The right strategy depends on your individual circumstances, and there's no one-size-fits-all answer. What matters is making an informed decision based on comprehensive information and expert analysis tailored to your situation.
Ready to explore your mortgage options? Contact Luminate Financial Group today for a personalized consultation. We'll help you determine whether refinancing or restructuring is the best path forward and guide you through the entire process.