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If you’ve got a fixed rate home loan with us and decide you want to repay the loan early or switch to a different rate, you may be faced with a fixed rate break cost.
When you sign up for a fixed rate home loan, you’re signing a contract with Kiwibank that your loan payments and interest rate will stay the same for a set period of time. This gives you the certainty that your repayments won’t change for that fixed period.
If interest rates go up, you’re protected from the rises; but if they go down, you can’t take advantage of it without breaking your fixed rate first.
If you choose to break your fixed rate – say you want to take advantage of lower rates, or you get a pay rise or come into some money and want to pay off your loan early or increase your repayments – we calculate whether this will result in a loss for Kiwibank.
If it will, this estimated loss is the amount that you’ll be charged as a fixed rate break cost.
Once you’ve entered into a fixed rate home loan, the only way to be certain of avoiding a break cost is not to break your fixed rate. (Isn’t hindsight great?)
If you sell your home and buy another one, we may be able to transfer your existing home loan and interest rate to the new property – in which case, you wouldn’t face a fixed rate break cost. Before you sign anything, talk to us and we’ll go through your options.
If rates start falling and you’re locked into a fixed rate, you might be tempted to break your fixed rate term. You might save money by doing this and switching to a lower variable rate,or even a lower fixed rate, but it will depend on the size of your fixed rate break cost.
If the only way you can afford to pay the break cost is to add it onto your home loan, you’ll need to apply for a top-up to your home loan and consider the extra interest you’ll pay by having a larger home loan.