We have a mortgage break fee / early repayment calculator that can help with your break fee scenarios here: Mortgage Break Fee Calculator

Breaking down mortgage break fees in New Zealand can be quite the task, especially with fluctuating wholesale rates. Let’s delve into three detailed scenarios to understand how these fees are calculated, considering the impact of changes in the wholesale interest rates.

Scenario 1: Large Break Fee Due to Significant Drop in Wholesale Rates

• Mortgage Amount: $600,000
• Original Wholesale Rate: 6.0%
• Current Wholesale Rate: 3.0%
• Remaining Term: 5 years
• Yearly Interest Calculation (Original Rate):
  • Each Year: $600,000 * 6.0% = $36,000
  • Over 5 Years: $36,000 * 5 = $180,000
• Yearly Interest Calculation (Current Rate):
  • Each Year: $600,000 * 3.0% = $18,000
  • Over 5 Years: $18,000 * 5 = $90,000
• Break Fee Calculation:
  • Interest Difference: $180,000 - $90,000 = $90,000
  • Admin Fee: $350
  • Total Cost: $90,000 + $350 = $90,350

Scenario 2: No Fee Due to Higher Rates

• Mortgage Amount: $400,000
• Original Wholesale Rate: 4.5%
• Current Wholesale Rate: 5.5%
• Remaining Term: 2 years
• Yearly Interest Calculation (Original Rate):
  • Each Year: $400,000 * 4.5% = $18,000
  • Over 2 Years: $18,000 * 2 = $36,000
• Yearly Interest Calculation (Current Rate):
  • Each Year: $400,000 * 5.5% = $22,000
  • Over 2 Years: $22,000 * 2 = $44,000
• Break Fee Calculation:
  • No Break Fee (since Current Rate > Original Rate)
  • Admin Fee: $300
  • Total Cost: $300

Scenario 3: Marginal Fee Plus Admin Fees

• Mortgage Amount: $250,000
• Original Wholesale Rate: 3.8%
• Current Wholesale Rate: 3.5%
• Remaining Term: 4 years
• Yearly Interest Calculation (Original Rate):
  • Each Year: $250,000 * 3.8% = $9,500
  • Over 4 Years: $9,500 * 4 = $38,000
• Yearly Interest Calculation (Current Rate):
  • Each Year: $250,000 * 3.5% = $8,750
  • Over 4 Years: $8,750 * 4 = $35,000
• Break Fee Calculation:
  • Interest Difference: $38,000 - $35,000 = $3,000
  • Admin Fee: $250
  • Total Cost: $3,000 + $250 = $3,250

In each of these scenarios, the calculation of the break fee is driven by the difference in total interest payable over the remaining term of the loan at the original and current wholesale rates. This showcases how a change in the wholesale rate can significantly affect the cost associated with breaking a fixed-rate mortgage early. Understanding these nuances is key for any New Zealand homeowner or investor considering a change to their mortgage arrangement, especially in a dynamic economic climate where wholesale rates can shift notably.