Rejig mortgages to save

With interest rates falling rapidly, homeowners can save tens of thousands by restructuring or refinancing their mortgages - but they face a new headache in early repayment fees.

Principal of Squirrel Financial Solutions John Bolton says his mortgage brokerage has saved new clients more than $1 million by changing their mortgages - including $128,000 for one customer on a seven-year fixed rate.

Another client will save $20,000 in interest over the next four years on a $300,000 loan. The average saving has been between $2000 and $4000 a year.

He calculates how much borrowers can save as the change in interest they pay over the remaining fixed term of the mortgage minus the penalty fee charged upfront to break it.

The penalty is called a "mark-to-market" fee and is hidden in the small print of all bank mortgage documents. It is calculated on the size of the mortgage, its remaining fixed term when it is repaid and how far interest rates - either customer or wholesale rates - have fallen since it was fixed.

If you took a five-year fixed rate in the past two years, or your mortgage is with ASB, BNZ, the National Bank or Sovereign, you will likely save significant interest by breaking the term and taking a new rate, Bolton says.

This is because these banks calculate the break fee off how far customer interest rates have fallen since the mortgage was fixed, which is not as far as wholesale rates have as a result of the credit crisis.

To read the full NZ Herald article click here

Posted: 17 Dec 2008

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