That Home Loan Hub
Welcome to That Home Loan Hub, your ultimate guide to mastering the world of home loans and property. I'm Zebunisso Alimova, here to simplify the complexities of real estate and provide you with expert insights and the latest trends.
Whether you're a first-time homebuyer, an experienced investor, or simply curious about the property market, this podcast is for you. Join me each week as we unlock the secrets to property success and help you make informed decisions. Let's dive into the world of property together!
That Home Loan Hub
To Break or Not to Break: The $8,000 Question
Are you trapped in a high fixed-rate mortgage while watching interest rates tumble? The financial sting of being locked into rates around 7% until 2028 or 2029 has many Kiwi homeowners questioning if they should break their fixed terms and refix at today's lower rates.
This question doesn't have a simple answer. Breaking a fixed mortgage involves substantial upfront costs—we discuss one client facing an $8,000 break fee—but the long-term savings from dropping to a rate that's 2% lower might outweigh this initial pain. The calculation involves much more than comparing two numbers on a page.
When considering a break, you'll need to evaluate immediate cash flow benefits (potentially reducing fortnightly payments from $800 to $600), long-term mortgage reduction (possibly shaving years off your loan term), available cash to cover break fees, potential cash incentives from new lenders if refinancing, and the crystal ball question nobody can answer: where are interest rates heading? With next year's election looming, economic factors become even more unpredictable.
This is definitely not a DIY financial decision. Even as financial advisors, we consult mortgage specialists when making these decisions about our own mortgages. Each situation is unique, requiring personalized analysis of your specific numbers and circumstances. Whether you reach out to us or another mortgage professional, make sure you're getting expert guidance before making a decision that could impact your financial position for years to come.
Buy your first home in NZ Weekly Webinars
You thought it's not possible or the dream is too far away? Come to my webinar and I will show you, you are much closer to your dream, than you think you are!
Join Here - https://bit.ly/4m9SL72
Hello and welcome back to that Homlon Hub. Today we're gonna talk about should you break your fixed rate right now or should you stay fixed for a little bit longer? Hello Kunch. Kioda! Thank you for joining me today on this very number heavy episode.
SPEAKER_01:Yes, should you break and refix is a lot of um a big topic at the moment. So we've still got lots of people on high interest rate. Some are you know all the way up to 2028, 2029.
SPEAKER_00:Um and they're sitting around 7% price. So that's what the rates were a few years ago. And people freaked out and they thought, ooh, the rates are gonna go up. Let me fix it for longer term. Yep. And they have. So what should they do? And what would be the first step for them?
SPEAKER_01:Well, it's hard to pinpoint particularly what to do because each person's situation and scenario is very different. So it's hard to actually be able to give that personalized advice to them. But I would just recommend to um find out what that break costs would be. So contact your bank directly, find out what that break cost is, um, and then just work backwards in terms of you know what the interest rate now is, and then just compare the difference. There's lots of calculators online as well to do that, or just contact a um mortgage advisor and would be able to sit down and work out those numbers and crunch some numbers to see whether it's worth um breaking and refixing on the lower rates.
SPEAKER_00:I was about to say, you know, New Zealanders are all about DIYs, right? Do it yourself, mate. But this is the episode where you shouldn't. No, but don't try to do it yourself because the thing is, if you are look, I'm a financial advisor, right? And even I had to sit down with my financial advisor and crunch some numbers, whether that's a good idea or not, because nobody can predict the rates. No, and we don't have a crystal ball, although I did buy one.
SPEAKER_01:Yes, there's a unicorn one, and our office guys, some weird random unicorn holding this crystal ball.
SPEAKER_00:Yeah, crystal ball. So there is a crystal ball, but it can't tell us what the rates will do. If you're curious about the crystal ball, come and see us. We allocate it at 46 Main Road. Why can I? But you know, in terms of the refix and break, I've got a client, for instance, let's take her as an example. They're fixed um at 6.99, and the rate is going until 2028. And this is crazy. You know, the repayment the fixed break fee is gonna cost them over$8,000 if they were to break today. So this is what three years away? Well, two and a half, two, two now. Yeah, two years almost, two years away from the loan coming up for refix. And she reached out and she's like, Look, the rates are currently two percent cheaper. Should I be breaking? And this is where it gets interesting, right? Yeah, because you've got to go, oh, okay, the break fee is eight grand, but what are you saving? Yeah. And this is where we could sit down, work it out with you. And if the cash flow matters, if you want to reduce your repayments, that's one way to reduce your repayments, because your repayments will go from$800 to$600 a fortnight. So immediately you're making some savings there. And then if you're going on the lower rate, and if you want to keep the repayments the same, then you are making faster repayments off your term loan. So instead of the loan being over 30 years now, you've saved five years off your mortgage.
SPEAKER_01:Yeah. Yeah. So if you can afford to pay the higher um repayments on the lower interest rate, then do so. Um, that does help you pay your mortgage off faster. But yeah, there's lots of um factors to be calculated into the um should I break and refix scenario. Uh so yeah, it's just gotta have a chat to the right person.
SPEAKER_00:Yeah, exactly. And I think people don't realize um that even though the break fee may look scary. Well, eight thousand dollars, that is quite scary. It may be worth it. You know, if we're changing banks and your mortgage is significant, the new bank will give you cash back. So you can recoup some of that money back. Yeah, and that the main thing is people don't realize is that eight grand break fee you have to pay up front. So if you are breaking it, you have to have that money in the bank account. Correct. So again, you know, be careful if you don't have that money, don't just go and make husty decisions. Yeah, because once the bank presses the button on the system, there's no turning back. We've been there. Yeah. Remember the times when we've done something as a banker and you're like, crap, oh, if I could tell some stories, yep. How do I undo that? Um, so yeah, guys, reach out to us and we'll be able to help you crunch the numbers. And if it's not to us, you know, reach out to someone else that knows the game. But it's really important right now to review and also remember the rates may continue to go down. Yes. So at what point do you break? And at what point do you fix?
SPEAKER_01:Yeah, and what term, like at what point do you actually go the long term in view of, you know, obviously rates will go back up. Yeah. As well.
SPEAKER_00:Exactly. And remember, next year's election year as well. So sometimes that affects the economy, and we'll do a whole other episode on that. Yep. But um currently, frequently asked question is should I break or should I stay fixed and just write it out? The answer is we don't know until we sit down with you. Yeah, it's all personalized to your situation. Exactly. So thank you so much and stay tuned. Thank you.
