Flurry of interest in breaking fixed contracts

by NZ Adviser29 Feb 2016
With interest rates at the lowest in 50 years, mortgage brokers said many Bay house owners are finding out about breaking fixed contracts, the NZ Herald reports. 

The low rates have fuelled Tauranga's heated real estate market and one real estate principal has sold 23 properties in an auction session on Thursday.

Rapson Loans and Finances owner Chris Rapson said people were looking into breaking their fixed interest rate loans and although it can be a better option, the cost, "can be quite big numbers".

He estimated that if someone had a $400,000 loan fixed at 5.59 per cent and had 18 months left to run and they could get 4.49 per cent, it would cost about $9000 to break or they could use the equity in their house.

He said although some people had broken fixed rates they remained on a floating rate as "the general feeling in the economy is rates are going to come back even more".

Rothbury mortgage adviser Keith Arden said he already had many inquiries from people wanting to break out of their existing fixed rates.

Each circumstance is unique and one client had saved about $6000 a year by adopting a lower rate, he said.

But if you had to use the equity in your own home to pay the break cost, "you are still going to pay interest on that amount over a longer period".

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