Should You Break Your Fixed Mortgage? Here’s How to Calculate If It’s Worth It
Over the past 16 years, mortgage interest rates in New Zealand have had their fair share of ups and downs. And with every rise and fall, a familiar feeling creeps in for borrowers: fix regret. Maybe you fixed at 6.99% for two years—only to see the rate drop to 6.79% three days later. Sound familiar?
If you’re considering breaking your fixed-rate mortgage to take advantage of lower rates, you’ll need to understand break costs—and whether doing so makes financial sense for your situation.
What Are Break Costs and Why Do They Exist?
When you fix your mortgage, you’re entering a contract with your bank. If you decide to break that contract early—usually to switch to a lower interest rate—the bank may charge you a break fee. This fee covers the bank’s loss from your early exit, and in New Zealand, they’re legally not allowed to profit from it.
The fee itself is based on Wholesale Swap Rates, which track closely with government bond yields and market demand. That might sound complex, but here’s the good news: because these rates move differently from advertised mortgage rates, break fees can sometimes work in your favour—especially if interest rates have dropped significantly since you fixed.
For example, one Mortgage Lab client paid a break fee of $54,481—but ended up saving $83,464 in interest by refixing at a lower rate. That’s a net gain of nearly $29,000.
How to Know If It’s Worth Breaking Your Rate
To decide whether breaking your fixed mortgage makes sense, you need to answer three simple questions:
How much will you save on interest?
Calculate the difference in repayments between your current rate and the new rate, over the remaining fixed term.What is the break cost?
Your bank can provide this estimate at no cost. Your adviser can request it on your behalf.Can you afford to pay the break fee upfront—or structure it into your mortgage wisely?
Real-Life Example: Jack and Jill
Jack and Jill were paying an average of 7.5% across their fixed mortgage accounts. Their bank quoted a break fee of $11,923.
By refixing at a lower rate, they stood to save $13,703 over the next 12 months. After subtracting the break fee, they’d be $1,780 better off—not life-changing, but definitely worth considering.
So is it worth paying $12,000 now to be $2,000 better off in a year or two? That depends on your cashflow and financial goals. But it shows how a careful calculation can guide your decision.
Can You Borrow the Break Fee?
If you don’t have the break fee available in cash, it may be possible to top up your mortgage to cover it. But there’s a catch—you don’t want to spread that cost over 25 or 30 years.
Instead, work with your adviser to repay the top-up over the same term as your new fixed rate—say, two years. That way, the cost doesn’t spiral due to compounding interest, and your overall savings still make sense.
Here’s the flow:
Apply for a $12,000 top-up
Break your fixed rate and pay the break cost
Continue making your usual repayments
At the end of your fixed term, your mortgage is roughly $2,000 lower than it would have been
Are There Legal or Solicitor Fees?
Usually, no. Breaking a fixed mortgage is just a contract change with your lender—it doesn’t affect your property title, so it doesn’t require a solicitor. You’ll likely need to sign some updated documentation, often at your local bank branch or digitally.
Do I Have to Refix for the Same Term?
Not at all. If you had 8 months left on your fixed loan, breaking it gives you a clean slate to refix for whatever term suits your situation.
That could mean taking a shorter term to benefit from low rates, or a longer term for stability. Either way, you have the freedom to reassess your mortgage strategy based on current market conditions and your personal goals.
(Need help deciding? Check out our blog on “Three Questions to Ask Before You Refix”.)
Is Breaking Your Mortgage the Right Move?
At Mortgage Lab, we’ve built a handy calculator (yes, it’s a well-designed Excel spreadsheet!) to help you compare your current interest payments with the cost of breaking and refixing. We also work with banks daily to request break cost estimates—there’s no fee to ask, and it won’t impact your current mortgage.
To get started, all we need is:
Your current mortgage balance and fixed interest rate(s)
Your remaining fixed term
Your consent to request a break cost quote from your bank
If you’re already a Mortgage Lab client, we may already have these details on file.