The recent OCR rate increase in New Zealand has many homeowners wondering what they need to know about renewing their mortgage. With interest rates on the rise, it’s important to consider your options carefully, seek financial advice and explore ways to potentially save money on your mortgage.

When the time comes time to renew your mortgage, you essentially have three options: renew with your current lender, switch to a new lender, or pay off your mortgage in full. Each option has its own pros and cons, and it’s important to weigh them carefully before making a decision.

Renewing with your current lender may be the easiest option, as it typically requires minimal paperwork and can often be done online. However, it may not necessarily be the most cost-effective option and you may be missing out on potential savings by not shopping around.

Switching to a new lender can potentially save you money on interest rates and fees, but it can also be more time-consuming and require more paperwork. You’ll need to apply for a new mortgage with the new lender, which will involve a credit check and providing documentation of your income and other financial information.

Paying off some of your mortgage may not be feasible for everyone, but it can be a good option if you have the means to do so. By paying off your mortgage early, you can save money on interest charges and potentially free up more cash for other expenses.

You might like to also consider changing the type of mortgage you have or splitting your mortgage across different mortgage loans, and for different terms e.g. 1-year loan and a 2-year loan,  to potentially save money. There are several types of mortgages for homeowners to consider, each with their own pros and cons. These include fixed-rate mortgages, variable-rate mortgages, offset mortgages, and revolving credit mortgages.

Fixed-rate mortgages are the most common type of mortgage in New Zealand. With a fixed-rate mortgage, your interest rate remains the same for the duration of your mortgage term, typically ranging from one to five years. This can provide stability and predictability in your mortgage payments, but it may not be the most cost-effective option if interest rates drop during your mortgage term.

Variable-rate mortgages, on the other hand, have interest rates that can fluctuate over time. This can make your mortgage payments more unpredictable, but it can also provide an opportunity to save money if interest rates drop.

Offset mortgages are a relatively new type of mortgage in New Zealand, which allow you to offset your mortgage balance against your savings. This can potentially reduce the amount of interest you pay on your mortgage, as your savings can be used to reduce your mortgage balance.

Revolving credit mortgages allow you to borrow and repay money as needed, up to a pre-approved limit. This can provide flexibility and potentially save you money on interest charges, as you only pay interest on the amount you borrow. A good option if you’re careful with money and a diligent saver.

Regardless of which option you choose, it’s important to seek expert advice from financial advisers. A qualified adviser can help you understand your options and recommend a course of action that’s tailored to your specific financial circumstances. They can also help you navigate the complex mortgage renewal process and ensure that you’re getting the best deal possible.

In addition to seeking expert advice, it’s also important to be proactive about managing your mortgage. This might involve making extra payments when possible, refinancing if interest rates drop, or considering shorter-term mortgages if you’re able to afford higher monthly payments.

With many homeowners set to renew their mortgages this year, now is the time to consider your financial situation and goals, explore your options and seek expert advice to stay on track with your financial stability and security.

Find a financial adviser in your area.