Refinancing · 7 August 2026
The rate difference is the easiest part of this decision to see and the least reliable part to act on. Three switching costs decide whether refinancing pays, and all three are about timing rather than the rate.
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Refinancing means moving your existing home loan to a different lender, or restructuring it materially with the one you have. The situations that genuinely justify a look are fairly consistent: a fixed term coming to an end, a current lender that will not sharpen its offer, a stronger equity position than when you borrowed, a change in income or structure that a different lender handles better, or a loan set up for a life you are no longer living.
What happens next is where most of these decisions go wrong. The comparison almost always gets made on the advertised rate, because that is the number both banks put in front of you. A gap of a fraction of a percent on a large balance looks like real money, and sometimes it is. Whether it survives contact with the switch depends on three costs that have nothing to do with the rate, and that are not fixed amounts you can look up. They move with the calendar, and two of the three move in directions most people find counterintuitive.
Legal fees for discharging the old mortgage and registering the new one, plus a valuation if the new lender wants one, are the costs people budget for. They are usually the smallest and the most predictable part of the picture. These three are the ones that decide the answer.
| The cost | What drives it | When it bites hardest |
|---|---|---|
| The break fee | How wholesale rates have moved since you fixed, and how long is left on the term. | When rates have fallen, which is exactly when a lower rate looks available. |
| The cash contribution clawback | How long it has been since you last took cash from a lender at settlement. | Early in the period, and the clock restarts each time you take a new one. |
| The term reset | Whether the new loan runs for your remaining term or a fresh full one. | Never at settlement. It is paid quietly over the following decades. |
If your loan is fixed and you leave mid-term, the lender can charge an early repayment charge, usually called a break fee. It is worth understanding what it is, because the common assumption that it is a penalty for leaving leads people to the wrong conclusions about when to move.
Under the Credit Contracts and Consumer Finance Act, a lender may charge a reasonable estimate of its loss when a loan is repaid early. Lenders can either use the safe harbour formula set out in the regulations, in which case the estimate is assumed to be reasonable, or use their own procedure so long as it still produces a reasonable estimate of loss. They have to tell you which approach they use and how the charge is worked out (Source: Commerce Commission). The Banking Ombudsman Scheme also publishes guidance on early repayment charges for borrowers who want to check a figure they have been given.
The mechanism behind that loss is what makes the timing strange. When you fix, the lender funds that loan for the term at a wholesale rate. If you hand the money back early and wholesale rates for the remaining term have since fallen, the lender can only re-lend it for less than it was earning, and the gap is its loss. The break fee tracks that gap.
Two practical points follow. First, a break fee is a live figure rather than something you can estimate reliably from an online tool: it depends on your balance, the time left, and where wholesale rates sit on the day, so it can change from one week to the next. Asking your current lender for it in writing is the only way to know. Second, this is why the end of a fixed term is the natural window for switching. At that point there is usually nothing to break, and two of these three costs disappear. If you are weighing how long to fix next time, we cover that trade-off in fixed versus floating mortgages in NZ.
Lenders competing for refinancing business commonly offer a cash contribution at settlement, usually a percentage of the loan, paid to help with legal costs and to make the move attractive. It is real money and it is a legitimate part of the calculation. It also comes with a condition that is easy to sign and easy to forget.
That condition is a clawback period. Stay for the agreed time and the cash is yours. Leave early, whether by refinancing again, repaying the loan or selling, and some or all of it becomes repayable. Clawback periods commonly run for three to four years from settlement, depending on the lender, and lenders differ just as much in how the amount reduces over that time. Some reduce it on a daily pro-rata basis, so waiting a month makes a small difference. Others work in annual blocks where the figure does not move at all until the settlement anniversary, and then drops sharply.
Here is the part that rarely gets said out loud. Accepting a new cash contribution from the new lender starts a fresh clock. A borrower who moves each time an attractive cash offer appears is never outside a clawback window, and has effectively traded flexibility for the cash without noticing the trade. The cash is not free money for switching. It is a payment for a commitment period, and every time you accept one you re-buy that commitment.
A refinance is a new loan agreement with a new lender, and the term on that agreement often defaults to a fresh full one rather than the time you had left to run.
Consider a borrower six years into a thirty year loan who refinances onto a new thirty year term. The repayment drops, sometimes noticeably, and that drop is easy to read as evidence the switch worked. What has actually happened is that six years of progress has been handed back and the loan now finishes six years later than it would have. Over that horizon the additional interest can comfortably exceed everything the rate saving was ever going to deliver.
This one is the least discussed of the three and the easiest to avoid. Asking for the remaining term rather than a new full term generally costs nothing, and the new lender will usually accommodate it. Keep the term and take the rate. If the lower repayment is genuinely what you need, that is a legitimate reason to extend the term, but it deserves to be a deliberate decision rather than a default you inherit. Our loan repayment calculator shows what different terms do to both the repayment and the total interest, and paying off your mortgage faster covers the structures that work in the other direction.
It is worth being blunt about why this cost survives so many comparisons: it does not appear on any settlement statement. There is no line item, no invoice and no moment where anyone asks you to approve it. It simply becomes the shape of the loan.
The comparison becomes reliable once these costs are on the table rather than assumed away. A workable order of operations looks like this.
Ask your current lender for the actual early repayment charge, not an online estimate, and note that it can move between the quote and the settlement date.
Find out how much of any cash contribution is still repayable and when that figure next reduces. Then ask what the new lender's cash offer would commit you to.
Legal fees for discharge and registration, and a valuation if the new lender requires one. Small relative to the others, but they belong in the total.
Weigh the total cost against the saving over the period you would realistically be fixed for, not over the full remaining life of the loan. The rate you are comparing does not last that long.
One further check matters before any of this is worth doing. A new lender assesses you fresh: its own servicing test, its own credit policy, and the loan-to-value and debt-to-income settings in force at the time (Source: RBNZ). A refinance is a new application rather than a transfer of an existing one, so a clean history with your current bank helps but does not carry you through automatically. Testing your position across lenders before an application is submitted anywhere is where an adviser earns their place, and we set out the trade-offs of each route in using a mortgage broker versus going direct to a bank.
So, is refinancing worth it? It is when the total benefit over a horizon you can actually see clearly exceeds the total cost of getting there, and when the structure at the far end genuinely suits how you want to run the loan. That is a different question from whether another bank is advertising a lower number, and it is answerable with a few phone calls and an honest total.
Yes, but breaking a fixed term early can trigger an early repayment charge, commonly called a break fee. Under the Credit Contracts and Consumer Finance Act a lender may recover a reasonable estimate of its loss, so the charge depends on how wholesale rates have moved since you fixed, your remaining balance and the time left on the term (Source: Commerce Commission). The end of a fixed term is the natural window because there is usually no break cost at that point.
Often yes, if you are still inside the clawback period attached to it. Clawback periods commonly run for three to four years from settlement, depending on the lender, which also sets how the amount reduces over that time. Some lenders reduce it on a daily pro-rata basis and others in annual blocks that only drop on the settlement anniversary. The exact terms are set out in your loan documents.
It can. A refinance usually means a new loan agreement, and the default is often a fresh full term rather than the time you had left. That lowers the repayment, which can look like a saving, while adding years of interest. Asking for the remaining term instead of a new full term generally costs nothing and avoids it.
No. A new lender assesses you fresh against its own lending criteria, servicing test and the loan-to-value and debt-to-income settings that apply at the time (Source: RBNZ). An existing mortgage with a clean repayment history helps, but it is a new application rather than a transfer, and timelines vary by lender and by how complete the application is.
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This article is general in nature and is not financial advice. Lending criteria, lender policies, and relevant rules vary and change regularly. Always seek advice specific to your situation before making decisions. Read our disclosure statement →
