Is it time to break free from your home loan rate?

With average home loan rates dropping across all major lenders, many Kiwis currently on fixed rates may be considering whether it is financially prudent to pay a break fee, in order to save long term. In research released today, Canstar has shown that the decision can be a cost effective one, but only in the right circumstances.

In our indicative case study, we have looked at a borrower who took out a two-year fixed home loan six months ago, assuming they locked in the average two-year fixed rate of 4.52 percent at that point in time. If this borrower switched to the minimum two-year fixed rate of 3.99 percent currently available on the market, and paid a break fee of approximately $1800, they could save more than $1300 due to interest cost savings.

However, if they switched to the average two-year rate of 4.37 percent (as at 1 April 2019), while they could save $878.94 in interest charges, by incurring a $1800 break fee they could be worse off by $921.06.

Canstar recommends that borrowers undertake research across lenders, consider how long they have left to run on their fixed home loan term versus the total length of the loan, how their provider calculates its break fee, their current loan interest rate, and the rate they are considering switching to.

“New Zealand’s current market is flat with relatively low activity. To best understand your position when considering a rate switch during a fixed term loan, we encourage borrowers to negotiate – including on break fees and other administrative costs charged – particularly as lenders compete to retain home loan customers,” says Jose George, General Manager of Canstar New Zealand.

For the second year running, ASB Bank has been awarded Canstar Bank of the Year – Home Loans. It recognises ASB for providing outstanding value products across owner occupier and investor home loans. It received five, 5-Star Rated products from our results which included the investment fixed, investment floating, residential fixed and line of credit profiles.

ASB’s strong institutional performance, across several categories including loan research, accessibility, education, process and budgeting tools, was also a decisive factor in the win. These categories relate to the supply of repayment calculators, property reports and case studies which add value to ASB borrowers’ pre-purchase decision making.

“Overall ASB is leading the way in providing access to branches and services, its combination of strong product assessment performance, and its leading institutional offering,” says George.

Canstar’s Home Loan Star Ratings and Award compared 10 providers across 58 products, with 11 5-Star Product winners in addition to the Bank of the Year – Home Loans Award won by ASB. The winners were selected across fixed, floating and line of credit home loan categories.

We have compared home loan lenders and provided information to help you decide which loan is right for you. Details about Canstar Outstanding Value Home Loan Rates and other useful resources can be found our website here.

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