Thinking about breaking your mortgage?

Following two consecutive drops in the Official Cash Rate (OCR), many Kiwis with fixed-rate mortgages are wondering if they can secure a better deal.

While the possibility of a lower interest rate is appealing, the costs associated with breaking your current fixed rate term may not make it worthwhile.

Identifying break costs

Changing the terms of your mortgage during the fixed rate period can incur break costs. These are fees that lenders charge to recover losses encountered when the fixed rate term ends early.

The break cost amount can depend on a range of factors, including current market conditions and the remaining term of your fixed rate loan.

Comparing rates and costs

Break costs are influenced by the difference between your fixed rate and current market rates. Usually break costs will apply when market interest rates have reduced.

The greater the differential, the higher the break fees are likely to be. So, it’s important to run the numbers to determine if making a move makes sense for you.

Getting the timing right

As you approach the end of your fixed term, break fees generally decrease. If you wait until it’s complete, you could avoid them altogether and shop for a better rate. If your fixed rate is due to expire soon, it could be worth looking at variable rate loans.

If you're still early in your loan term, break fees could be much higher. It’s important to weigh these costs against the potential savings you may get from securing a lower interest rate.

Seeking expert advice

In the current market, switching your fixed rate mortgage may be appealing at first glance. However, it's important to delve deeper before making a move.

Whether you’re seeking a mortgage, or your current fixed rate loan is soon to expire, an experienced mortgage adviser can help you navigate your options and find a solution that works for you.

To get started, reach out to your local Mike Pero Mortgage Adviser today.