When Re-fixing Mortgage, can I change the term?

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Forums › Finance and wealth management › When Re-fixing Mortgage, can I change the term?

keewee01

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#285713 12-May-2021 12:14

Long story short - 2 year fixed term on 21 year mortgage is coming up for renewal with KiwiBank.

Big drop in rates over that time, so I would like to keep paying at least what we are paying now, which will be well above the minimum for the mortgage term - but well over the 5% extra payments they allow you to make without penalty.

My question is - should I be able to go to KiwiBank and ask to re-fix but as a (for example) 16 year mortgage, on a 2 year fixed term rate? (as when we finished the existing fixed term we're at "19 years" (21 - 2))

Or is this not how it works, as I tried this 2 years ago and they refused telling me that it had to be 21 year mortgage!? I know a previous bank allowed me to do this but so long ago I'm not sure what they changed in the loan structure. Or is that the key - that this is a restructure of the loan?

Wanting to be armed with the right information before I call to re-fix. Thanks.

timmmay

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#2706519 12-May-2021 12:17

You can do anything you want when you refix. Change terms, split them, combine them, etc. At least with ASB. Our mortgage is split into three accounts, each time one part comes up for renewal we choose the term that best suits us.

nzkc

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#2706520 12-May-2021 12:21

Just remember: Everything is negotiable.

Whether your bank will entertain the notion with your particular situation is something we cannot predict. You're completely able to change your terms - some may come with a financial cost to do so. Re-fixing for another two years is absolutely possible and the bank will give you a rate to do so. If you've rolled off (all) your fixed terms and are now (or going to be) on a floating term you have a little more bargaining power as its far easier for you to move your mortgage to another institution. Even if you haven't you might find the new institution is willing to pay any penalties for you (though that will be factored into their offer obviously). Start asking your bank to at least match other offers you have had.

nzkc

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#2706521 12-May-2021 12:23

Slightly off topic... one tip I recommend to people (we did this off the back of some advice) is that as rates go up and as you refix do your best to swallow the increased cost and not extend your mortgage. As rates go down, reduce the term not your repayments. You pay your mortgage off far quicker this way.

mudguard

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#2706527 12-May-2021 12:36

Just remember altering the term length is probably a re-doc. Not just confirming an interest rate. So they might want to look at everything in full etc, lawyer.
Maybe. I've been out of the bank for awhile.

cshwone

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#2706532 12-May-2021 12:44

I refixed with Westpac in Feb. I just asked to keep the payment the same and didn't actually refer to the term. At a lower percentage rate it's obviously quicker.

Westpac had no issues with that approach

timmmay

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#2706536 12-May-2021 12:50

You don't change the term with paperwork, you just refix on your selected term and select your payment rate. If your rate goes up the term automatically goes down.

mortonman

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#2706537 12-May-2021 12:51

cshwone: I refixed with Westpac in Feb. I just asked to keep the payment the same and didn't actually refer to the term. At a lower percentage rate it's obviously quicker.

Westpac had no issues with that approach

agree. If you want to pay off quicker just increase the payments.

If you want the security of a certain interest rate for longer then fix for a longer period but remember its harder to change the payment amount during the fixed period.

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keewee01

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#2706560 12-May-2021 13:42

OK, have jumped into my account online and it looks like this time they have the flexibility there and I will not have to talk to a person - I can just do it!

I can pre-fix it all from online, including hiking the repayments as high as I wanted to (which will bring the life time of the loan down) and then some. Yay! So either they were playing hard-ball last time, or they've caught up with the rest of the banking sector.

Thanks all for your input.

jonb

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#2706566 12-May-2021 13:55

With ASB I kept the term but increased the voluntary monthly payments, for same effect. This was the structure my mortgage advisor recommended too, not sure entirely why but works well. Also split it into 2 seperate loans with option to increase monthly payments on both of them.

mattwnz

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#2706600 12-May-2021 14:41

nzkc:

Slightly off topic... one tip I recommend to people (we did this off the back of some advice) is that as rates go up and as you refix do your best to swallow the increased cost and not extend your mortgage. As rates go down, reduce the term not your repayments. You pay your mortgage off far quicker this way.

In the US, people can take out and fix 25 or 30 year mortgages at these ultra low rates. In NZ the max seems to be 5 years. BNZ have just removed the 7 year option, as few had taken it up, which is obvious when rates have been this low and dropping , esp on floating and shorter terms. But when rates start rising, I suspect the 7 year one would become more popular, and some people would love a 25 year fixed one for the certainty. I would be fearful taking out these huge mortgages as a FHB, in that maybe in 10 years the interest rates could be significantly higher. I guess the benefit of being on floating though is that you can pay it off quicker if you have a windfall or inheritance etc?

rogercruse

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#2706606 12-May-2021 15:06

You can almost do whatever you wanted with your mortgage. And we've never had any problems changing our mortgage terms, repayments, etc.

We changed our UK mortgage to an offset mortgage - where your savings are offset against your mortgage to reduce your monthly repayments - We also left the repayment amount untouched whenever the internet rates reduced and we eventually cleared the mortgage ten years earlier.

When we moved to NZ, we had to take out a new mortgage (due difference in UK & NZ house prices!) as offset mortgages weren't possible. We eventually changed this to an offset mortgage to again reduce the monthly repayments.

KrazyKid

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#2706607 12-May-2021 15:24

I've also always used an offset mortgage.

We fix portions for 1 & 2 years and leave a chuck floating in an offset account.

All our pay goes into this offset account and all our spending comes out.

The aim is to have reduced the floating loan to zero at the end of the year and the the 1 year portion becomes floating and we pay that off.

This means for the past 20 years I have never earned interest as technically have no savings, and thus never have to pay interest.

Figured that saved me 33% in tax bills which could go towards the home loan.

We also spend everything we can on the credit card and pay it off in full each month.

This one account approach may not work for everyone but does work for us.

Now that interest rates are so low it may be less worthwhile but when I was paying 6-8% interest on a loan it sure made sense.

freitasm

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Geekzone

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#2706640 12-May-2021 16:50

I have changed interest earlier this year with ANZ via their online banking. Because I kept the same payment amount, the whole term was reduced by quite a few years. Very pleasing.

nzkc

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#2706650 12-May-2021 18:13

mattwnz:
In the US, people can take out and fix 25 or 30 year mortgages at these ultra low rates. In NZ the max seems to be 5 years. BNZ have just removed the 7 year option, as few had taken it up, which is obvious when rates have been this low and dropping , esp on floating and shorter terms. But when rates start rising, I suspect the 7 year one would become more popular, and some people would love a 25 year fixed one for the certainty. I would be fearful taking out these huge mortgages as a FHB, in that maybe in 10 years the interest rates could be significantly higher. I guess the benefit of being on floating though is that you can pay it off quicker if you have a windfall or inheritance etc?

Not just the US. A long term is great if you want certainty. However you're locking in that rate and can't take advantage of the times the rates drop. And in 25yrs they almost certainly will.

It also restricts your ability to pay it off sooner. Though this really depends on the options your institution offer. Many will accept a % lump sum payment per year for example. Though that's going to be far less than 100% of your outstanding principle.

It's all about risk vs reward. What works for some won't fit others.

NZ has comparatively high rates. And one reason (of the many) is (unfortunately) that we agree to pay them. There are reasons for that mostly around capital gains on property. That may change in the future and we'll have to see if it does.

As we have become accustomed to historically low rates in curious to see how we'll react as a society as they climb. Hopefully we don't see a return to double digit rates as many cannot afford that anymore.