Breaking a fixed term loan

Your fixed rate ‘contract’

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.

Fixed rate break cost

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.

How to avoid paying fixed rate break costs

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?)

• Before you take out a fixed term loan, consider your goals and circumstances carefully. Are they likely to change at all during the fixed term?
• If flexibility is important to you, you could choose a variable rate instead of a fixed rate when you take out your loan. Or you could take a combination of fixed and variable rates to get a balance of flexibility and certainty.
• You could also spread your loan over different fixed terms – for example: one, two and three years. This means different portions of your loan will come off fixed rates at different times which will help smooth out the impact of any changes in market interest rates.

If you’re selling your house and buying another one

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.

Can it be worth breaking a fixed rate?

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.