Refinancing a Mortgage: What You Need to Know

Refinancing a mortgage can offer homeowners various benefits, from lowering interest rates to accessing home equity. However, the process can be complex, requiring careful analysis and professional advice. This article outlines the mortgage refinance process in New Zealand and how your lawyer can help ensure a smooth and beneficial transaction.

Understanding the Reasons for Refinancing

If you're unsure what refinancing involves, think of it as replacing your current mortgage with a new one—often with better terms. Here are some reasons homeowners refinance their mortgages:

1.    Lowering Interest Rates: If market interest rates have dropped since you took out your mortgage, refinancing could help you secure a lower rate and reduce monthly repayments

2.    Changing Loan Terms: Refinancing allows you to adjust your loan term. Switching from a longer-term mortgage to a shorter-term one can help you pay off your home faster, while extending the term may lower monthly payments.

3.    Accessing Equity: If your property has increased in value, refinancing can allow you to access some of your home’s equity for renovations, debt consolidation, or other financial needs.

4.    Switching Lenders: Refinancing provides an opportunity to switch to a lender offering better terms, improved customer service, or more flexible repayment options.

The Legal Process (when your lawyer becomes involved)

Once you have selected a new loan, the legal and financial aspects of refinancing must be carefully managed. Your lawyer will oversee the following:

1.    Discharging the Existing Mortgage: The previous mortgage must be paid off and discharged from the property’s title. Your lawyer will handle this process and ensure all legal requirements are met.

2.    Registering the New Mortgage: Once the old mortgage is discharged, the new loan must be registered with Land Information New Zealand (LINZ). Your lawyer will ensure the correct documentation is filed.

3.    Settlement Coordination: The funds from the new lender will be used to repay the existing loan. Your lawyer will liaise with all parties to ensure the smooth transfer of funds.

Refinancing When a Company, Trust, or Guarantees Are Involved

Refinancing becomes more complex when a company, trust, or personal guarantees are involved. Your lawyer plays a critical role in navigating these complexities, including:

1.    Company-Owned Property: If a company owns the property, refinancing may involve reviewing director guarantees, shareholder approvals, and company resolutions. Your lawyer will ensure the legal requirements are met and that any new lending arrangements align with the company’s structure.

2.    Trust-Owned Property: When a trust holds the property, refinancing requires trustee approval and may involve reviewing the trust deed to ensure compliance. Lenders may also require updated trust documentation before approving a refinance.

3.    Personal and Cross-Guarantees: Many lenders require personal guarantees from company directors or trustees, as well as cross-guarantees between related entities. Your lawyer will review these guarantees to ensure you understand the obligations and potential risks, including liability for debts beyond the refinanced loan.

Summary

Refinancing a mortgage can provide significant financial benefits, but the process requires planning and legal oversight. A lawyer plays a crucial role in protecting your interests and ensuring compliance with legal requirements.

If you are considering refinancing your mortgage in New Zealand, our property experts Richard Allen, Tom Pivac, Robyn Karam, Shannon McEwen and William Swan are available to guide you through the refinancing process—contact our team today.