This blog was originally written on the 18th November 2008. JB (and what we’re up to) has featured in the NZ Herald and on Campbell Live on TV3.
If your mortgage is at a rate over 8.00% you’ll be looking at current mortgage rates below 6.50% with envy! The good news is that some of you can save significant money by restructuring or refinancing your mortgages – but you need to act quickly.
The cost of breaking your mortgage
The fee is called a “mark-to-market” fee and is hidden in the small print of all bank mortgage documents. It is a calculated fee that is based on the size of the mortgage, how far interest rates have fallen since it was fixed, and its remaining fixed term when it is repaid.
The penalty fee is complicated but roughly equates to $1,000 per $100,000 borrowed for every 1% fall in rates, and for every year of its remaining fixed-rate term. So if interest rates fall by 2%, a customer with a $400,000 mortgage on a five-year fixed rate with three years still to go will face a penalty fee of around $24,000!
As a general rule, customers won’t financially benefit from breaking fixed rates and refinancing when interest rates are falling. The prepayment fee will offset any reduction in interest paid. However, there are some BIG exceptions to this rule!
How to save money
If your mortgage is with ASB, BNZ, National Bank or Sovereign, or you took a five-year fixed rate during the past two years, then you will likely save a significant amount of interest by breaking and taking a new fixed rate. It depends on a number of factors but we are happy to do the calculations for you.
Unfortunately, if you are with Westpac, ANZ or Kiwibank the benefit of breaking your mortgage is likely to be a lot less.
We calculate the saving as the change in interest you pay over the remaining fixed term of your mortgage, less the penalty fee (that you need to pay upfront to break the mortgage.) If you have aloan-to-value ratio below 75% on your property we can get the fee added to the mortgage.
[STOP PRESS - 17 Dec - A financial benefit no longer exists for ASB or Sovereign customers. They figured it out! BNZ and National Bank are still worthwhile for five- to seven-year fixed rates.]
Who are we?
About us
Squirrel is an independent mortgage broking and advisory business. We are happy to help you get the best out of your mortgages whether that is buying property, refinancing or simply restructuring everything to make it work better. If you are buying a new home then you can apply online with us and we’ll save you a bucketload of money, time and stress. Sign up for our free newsletter and get emailed our latest mortgage advice and insights on the housing market.
JB (author of this blog) is the former general manager (products) at ANZ National Bank and has managed over $15 billion of mortgages.
