Break Fees

What are break fees and how are they charged?

A ‘break cost’ is a fee charged by your bank when you pay the loan out before the fixed term has expired. Break costs are the penalties for cancelling your mortgage. The bank will try and discourage you from changing to a lower rate or switching banks by charging you a fee. Usually, the only reason you’d pay this fee is because the benefits are bigger than the fees. If you’re switching banks, the new bank might help you pay these fees with cash back. Some people do get a little worried when the break fees are big fees in the $5-10,000+ range but when they see that they are saving much more than that they can see it is worth it.

Break Cost Calculator.

This is an estimate of the break cost, every bank calculates these costs slightly differently based on the application.
For more info email Support@iRefi.co.nz.

How to use this calculator

  1. Input the remaining principle of your home loan. This is the amount you still have to pay on your property.
  2. Input the original interest rate of your home loan.
  3. Input the amount of time left before your current fixed rate comes to an end.
  4. Input the amount of your new interest rate after refinancing your home loan.

NOTE: If you have multiple fixed loans input the total value of these loans and input an average for the interest rate. “Approximate Break Cost” represents the amount you would have to pay to break your current fixed mortgage. However, the savings you make by switching to a lower interest rate often make this a worthwhile expense. Now try our refinance calculator to see how much you could save by switching to a lower interest rate.

Here’s a real world example for you

CURRENT LOAN INTEREST RATE INTEREST COST NEW INTEREST RATE NEW INTEREST COST INTEREST SAVINGS BREAK FEE
$218,654 5.15% $11,261 4.45% (2yr) $9.730 $2,411 $2,162
$109,613 5.40% $5,919 4.35% (1yr) $4,768 $662 $345
CASHBACK $2,786
LEGAL FEE $900
NET SAVINGS $2,425

 

Have a closer look at all the numbers here. Patrick has a mortgage of around $330,000 fixed in two portions at 5.15% and 5.40% and it will cost $2,160 and $450 to break each of these loans. As you can see, on lower interest rates of 4.35% and 4.45% and with some cash back, Patrick will save over $2,400 over the remaining fixed term. You wouldn’t believe how many kiwis are being fooled into thinking their bank has got them on the best home loan rate. Try this mortgage refinancing calculator to see if it’s worth you looking into getting a lower interest rate.

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