Take a $500,000 balance with 25 years left, currently fixed at 7 percent, and a new rate of 6.2 percent on offer. At 7 percent the monthly repayment is about $3,534. At 6.2 percent it drops to about $3,283. The difference, $251 a month, is your saving from the lower rate. Over a year that is roughly $3,012 back in your pocket.
If you refix with your current bank there is usually no switching cost, so the saving starts immediately. If you switch banks and the net cost after cash-back is, say, $3,000 in legal and break fees, you divide that $3,000 by the $251 monthly saving and recover it in about 12 months. After that the saving is pure gain, provided you stay with the loan. Always check the break fee on a fixed loan before you move, as it can wipe out the benefit.
How it is calculated
The tool runs the standard amortising-loan formula twice on the same balance and remaining term, once at your current rate and once at the new rate. The monthly payment formula spreads the loan over the number of months so that the balance reaches zero at the end. Subtracting the new payment from the old payment gives the monthly saving, and multiplying by 12 gives the annual saving. The break-even is the net switching cost, meaning fees minus any bank cash-back, divided by the monthly saving and rounded up to whole months. A net cost of zero or less, which is common when cash-back covers the legal bill, means the saving starts straight away. The calculation assumes the term stays the same, so if you reset to a fresh 30-year term the monthly saving will look larger but you pay for longer.
Frequently asked questions
Is it worth refinancing my NZ mortgage?
Switching banks often comes with a cash-back contribution that offsets legal and break costs, while refixing with your current bank at a lower rate has no switching cost. Compare the monthly saving from the lower rate against any net costs; if you recover them within a year or two and plan to stay, it usually pays off. Watch break fees on a fixed loan.
What is a break fee and when does it apply?
A break fee (also called a prepayment cost or early repayment charge) applies when you pay off or refinance a fixed-rate home loan before the fixed term ends. Banks calculate it based on the difference between your contracted rate and the current wholesale rate for the remaining term. The Reserve Bank of New Zealand requires banks to disclose the break fee before you commit; ask your bank for a quote before comparing refinance options.
Does KiwiSaver affect my ability to refinance?
KiwiSaver balances cannot generally be withdrawn for mortgage refinancing or to reduce an existing mortgage. Withdrawals are restricted to the first-home purchase scheme (for eligible buyers who have not previously owned a home), significant financial hardship, serious illness, permanent emigration, or retirement at age 65. Refinancing an existing owner-occupied mortgage does not qualify under any of those categories under IRD rules current to 2025/2026.
Are mortgage interest payments tax-deductible in New Zealand?
For owner-occupiers, mortgage interest on the family home is not deductible. The interest limitation rules phased out deductibility for residential investment properties acquired on or after 27 March 2021, and as of the 2025/2026 tax year the rules have been updated under the National-led government to allow 80 percent deductibility rising to 100 percent from the 2025/2026 income year for new builds and existing rentals. Check the IRD website or a tax adviser for your specific property as the rules depend on acquisition date and property type.