Welcome and Topic Introduction

Speaker 1 0:10

Hey everyone , welcome back to that Home Loan Hub . I'm Zibuny Salimova , mortgage advisor , mom of four and someone who's passionate about helping you make smart mortgage decisions . Today we're answering a question I've been getting a lot lately Should I break my fixed mortgage early ? It's a big decision and sometimes an expensive one , so let's break it down together . Why would you break a fixed mortgage ? Let's start with the why .

Speaker 1 0:36

There are a few common reasons people consider breaking their fixed mortgage . Interest rates have dropped and they want to refinance at a better rate . Life changes , selling the house , separating , relocating , getting married , debt consolidation . They want to restructure the loan and free up some cash . And sometimes people are simply feeling financial pressure and looking for any relief and while it might feel like the right thing to do , it's not always the smartest move unless you've done the numbers . So how are break fees calculated , you'd ask ? This is where it gets tricky , because there is no fixed formula . You can Google .

Speaker 1 1:13

Break fees , also called earlierment costs , are calculated based on the interest rate you locked in the time left on your fixed term current market rates at the time you break the amount you still owe . Basically , if the bank loses money by you leaving early , they'll charge you to cover that loss . Sometimes the fee is small . Other times I've seen fees of $10,000 or more . So before you act , you need to ask your bank or an advisor for a formal break cost calculation . And usually when they're given , they're given to be applicable just for that day , because the break fees may change daily . Now when might it be worth it ?

Speaker 1 1:55

Here are a few situations where breaking your fixed term can make sense . Interest rates have dropped significantly and you're saving thousands over the new term , even after paying the fee . You're refinancing for a major restructure , like debt consolidation and improving your cash flow . You're planning to sell your property and there is no way to avoid it . You're switching lenders for a much better deal with cash back and a lower rate combined . But remember there are strategic decisions . The numbers must stack up . Now I've got a really cool case study for you here .

Speaker 1 2:28

So one of my clients was fixed at $6.99 for another 18 months . They were struggling financially and wanted to switch to a new lender offering $5.89 and $3,000 cashback . We ran the numbers Break cost was going to be around $4,200 . Total interest saved over the next two years was going to be about $5,800 . And the cashback they'll get is about $3,000 to cover some of the legal fees and the cashback they'll get is about $3,000 to cover some of the legal fees . Now they will come out with about a benefit of $4,600 . In that case braking made sense . But if the rate dropped had only been 0.2% to 0.3% , the numbers wouldn't have worked in their favor . And remember , when there is a brake fee you have to pay it upfront , so sometimes braking is just too expensive . I've had clients excited to chase a new low rate only to find out the break fees would wipe out any potential savings , and more .

Speaker 1 3:26

If your fixed term has less than six months to go , the rate difference is small and you're not under financial pressure , then it might be better to wait it out and refix when your term naturally ends . Now remember this is not a financial advice and if you do need one , go and speak to a financial advisor . Alternatives to breaking early . So before you commit to breaking , ask about a partial repayment . Some banks let you pay a lump sum without fees . Explore top-up loans instead of refinancing the whole thing . So if you want to buy a new car , you don't necessarily have to break the whole mortgage . Talk to an advisor about blended or split loan options . Sometimes we can keep part fixed and part floating to ease your budget .

Speaker 1 4:10

And a final thought breaking a fixed mortgage isn't a yes or no question , it's a numbers question . It can be a smart move if done for the right reasons , at the right time and with the right strategy . But it can also cost you more than you think . And if you're even thinking about breaking your fixed rate , get professional advice first . I'm happy to run the numbers with you . No pressure , just clarity . And that's it for the episode of that Home Loan Hub . If you found it helpful , share it as a friend or leave a quick review . It helps more Kiwis make better money decisions . Until next time , stay smart , stay curious and don't sign anything without reading the fine print .