Author: Miriam Betts
Miriam is an Associate and registered legal executive at Freebairn & Hehir Lawyers. She has over 30 years experience helping individuals and families to navigate the complexities of residential conveyancing. Miriam can be contacted at miriam.betts@fhlaw.co.nz
Budget 2023 and rising interest rates
In the wake of the 2023 Budget, most experts predict an upward pressure on interest rates, with many banks expecting Reserve Bank interest rates to hit 6%. This is going to be a real strain for homeowners, especially those due to come off low fixed interest rates.
Many families will be looking to refinance their home lending and part of that, of course, is thinking about the costs – including the legal costs.
If you’re staying with your bank
The good news for those homeowners planning and able to stick with their existing bank is that legal fees for refinancing are often non-existent. This isn’t always the case, but the mortgage already you registered against your property will typically still be fit for purpose with the bank. That usually means just signing documents directly with the bank.
If you’re considering switching banks, however, it’s crucial to be aware of the potential costs involved and factor this into your budgeting.
Where your law firm is involved
When transitioning to a different bank your law firm will need to be involved in the process.
A new loan agreement will need to be signed as this allows you to repay your existing loan with the old bank. This part is generally reasonably straightforward.
Your title needs to be updated and this involves removing the old bank’s mortgage and registering one to the new bank. This must happen simultaneously with the repayment of the former loan using the proceeds from the new loan.
Except where the bank offers an in-house service, you need a law firm to carry out this work for you. Your law firm will prepare all the legal documents and register them on the switchover date. The new loan is drawn down to the firm’s trust account and used to pay the old bank. This process is necessary because it protects both the old and new bank.
How much is it going to cost in legal fees?
This varies. At our firm, we cap our fees for a typical refinance at $2,200. That figure includes GST, LINZ registration costs and AML on-boarding. Other firms take different approaches – just beware of “hidden fees”.
When obtaining a quote or estimate from a law firm, be sure to clarify whether the cost is inclusive of GST, expenses and disbursements and, if not, what these will amount to. This can come as a real surprise for people not accustomed to paying these extra charges. It’s not unheard of for these costs to approach $500.
When getting an estimate, we would always recommend asking what the “all inclusive” cost is going to be. You may be surprised.
Other complicating factors
Other factors that could influence your refinance costs include the need for guarantees and the possible presence of a family trust being involved. It’s essential to ensure you fully disclose all relevant details to your lawyer, allowing them to provide you with the most accurate advice and estimate of costs.
What about using discount providers
In the legal service market, you will come across firms, often via the internet, offering cheap services. They often promise to perform the refinancing process at a significantly reduced cost. While the old adage is that “there is nothing more expensive than a cheap lawyer,” many people swear by these cheap providers.
The one thing we would note is that such services inevitably come with limitations. This usually includes restricted access to your legal professional who may not have the capacity to be as responsive as you might expect. People are sometimes surprised that a budget service may not profile the level of communication that they expect. This could be a source of additional stress during a potentially challenging process.
Budgeting for other costs
Aside from legal fees, there are other costs that homeowners need to budget for when considering a refinance. These may include potential break fees, a property valuation, removal of caveats from a title, registration costs and potential costs for guarantees and trusts.