Do you kick yourself when mortgage rates fall? Many Kiwis regret having fixed at a higher rate when rates continue to nosedive.
The trouble is that you may have to pay a break fee to get out of your existing mortgage.
When rates plunged in 2008 many borrowers were desperate to escape the contracts and angry when banks hit them with astronomic break fees. These days the banks can only claw back the actual loss, says Sue Tierney of Sue Tierney Mortgages.
Tierney points out that lenders are legally allowed to charge break fees. It means you’re probably not going to be better off overall once you’ve paid the break fee.
Fixing provides certainty
People generally fix for one of two reasons, says mortgage broker Geoff Bawden, of Bawden Consulting. Either they want some certainty around their level of outgoings or they think the new rate is a good deal. Tierney says the certainty of knowing what you are going to pay for the period of the fix makes up for paying a little extra should rates fall before the end of the fix.
You’ve entered a contract
Bawden says he doesn’t have a lot of sympathy for the banks and their fees. He is on their side, however, when it comes to break fees.
“People fixing mortgage interest rates should understand clearly that they are entering into a contract which very simply states that they agree to borrow a certain amount of money for a certain period of time at a certain rate. You take a flutter when you sign up for a fixed rate. If the rates fall, you lose.