Rates Have Dropped – But You’re Locked In. Is It Worth Paying a Break Fee?

If you’ve been watching the headlines lately, you’ve probably noticed one thing: If you’ve been watching the headlines lately, you’ve probably noticed one thing: interest rates have dropped.

For many homeowners, that sparks the same question:

“I’m stuck on a higher fixed rate – should I break my loan and refix lower?”

It’s a fair question. And sometimes, the answer is yes.

But just as often, the numbers don’t stack up.

As mortgage advisers, this is one of the most common conversations we’re having right now and it’s not as simple as chasing the lowest rate you see advertised.

What Is a Break Fee (Break Cost)?

In New Zealand, if you’re on a fixed-rate home loan and want to change it before the fixed term ends, the bank will usually charge a break cost.

In simple terms, it’s an early exit fee.

You’ve agreed to a contract at a certain rate for a set period. If you leave early, the bank charges a fee to cover the interest they expected to earn.

That fee can range from a few hundred dollars to several thousand dollars

There’s no fixed formula that applies to everyone. It depends on:

• Your interest rate
• Current market rates
• How much time is left on your fixed term
• Your loan balance

Before You Do Anything, Do These 3 Things

When rates start falling, the worst thing you can do is panic-switch without checking the numbers. Before making any decision, always do the following:

1. Ask Your Bank for the Exact Break Fee

This is non-negotiable.

There’s no point guessing or estimating. Your bank can tell you the exact dollar amount — and it’s the only way to make a proper comparison.

2. Compare the Fee to Your Actual Savings

Next, look at how much interest you would realistically save by moving to the lower rate.

This isn’t about the headline rate. It’s about:

• How much interest you’d save over the remaining fixed term
• Minus the break fee and any other costs

Sometimes the savings are meaningful. Other times, they’re not.

3. Check How Much Time Is Left on Your Fixed Term

This is a big one that many people overlook.

Generally:

• The closer you are to the end of your fixed term, the smaller the break fee tends to be
• The longer you have left, the higher the fee is likely to be

If you’re only a few months away from refixing anyway, it often makes sense to wait.

So… Is It Worth Breaking Your Loan?

Here’s the honest answer: there’s no blanket rule.

Sometimes:

• The interest savings are greater than the break fee
• Breaking early puts you in a much better position

Other times:

• The break fee wipes out any benefit


• You’re better off staying put and refixing later

It’s not about opinions or market noise. It’s purely numbers versus numbers.

This Is Where Good Advice Matters

This is exactly the type of scenario where professional advice pays for itself.

At The Mortgage Hub, we run the numbers properly not just on the break fee, but on the full picture:

• Interest savings
• Loan structure
• Future refix options
• Your wider financial goals

Sometimes we’ll say, “Yes, it’s worth it.”

Other times we’ll say, “Sit tight — breaking now won’t help.”

Both answers are valuable.

Want a Clear, Simple Explanation?

Watch our Director, Mils Muliaina break down how break fees work and how to decide whether paying one actually makes sense.

And if you want help checking your own numbers, send us amessage. We’ll take a look and tell you clearly and honestly whether breaking
early is worth it for you.