When you are weighing up refinance and switching loans, the headline rate gets all the attention. But the real question is simpler: how long will it take for your savings to cover the cost of switching? That is your break-even point, and it tells you whether a move is worth making.
This guide shows you how to calculate it step by step, with a worked example you can adapt to your own numbers.
What Is a Break-Even Point?
Your break-even point is the number of months it takes for the savings from a lower repayment to add up to the costs of switching. After that point, you are genuinely ahead.
Break-even (months) = net switching costs ÷ monthly saving
If you expect to keep the loan longer than your break-even period, switching may make sense. If not, it may cost you more than it saves.
Step 1: Add Up Your Switching Costs
Typical costs to check include:
- An early repayment (break) fee if you leave a fixed rate before it ends
- A discharge or administration fee from your current lender
- Legal fees, although many lenders offer to contribute
- A valuation, which the new lender sometimes covers
- Repayment of part of any cashback you received from your current lender
- Any application fee charged by the new lender
Our article on refinancing costs, break fees and true savings covers these in more depth.
Step 2: Work Out Your Monthly Saving
Compare the repayment at your current rate with the repayment at the new rate over the same remaining term. You can use our mortgage calculator to do this. Keep the loan balance and term the same, otherwise a lower repayment may simply reflect a longer loan rather than a real saving.
Step 3: A Worked Example
The figures below are illustrative only. They are not current rates or an offer.
- Loan balance: $600,000 with 25 years remaining
- Current rate: 5.79%, repayment about $3,789 a month
- New rate: 5.29%, repayment about $3,610 a month
- Monthly saving: about $180
Switching costs:
- Early repayment fee: $2,500
- Discharge and admin fee: $350
- Legal, valuation and other costs: $750
- Total costs: $3,600
Break-even without cashback: $3,600 ÷ $180 = 20 months
If the new lender pays $2,000 cashback, your net cost falls to $1,600. $1,600 ÷ $180 is about 9 months.
If you switch when your fixed term ends, the early repayment fee disappears. Your costs fall to about $1,100, and break-even drops to roughly 6 months.
The lesson: the same rate drop can have very different break-even points depending on timing and costs.
What Can Change the Answer
Timing
Switching at the end of a fixed term usually avoids a break fee. Read more on fixed vs floating mortgage structures before you decide.Cashback conditions
Cashback may need to be repaid if you leave within a set period.How long you will keep the loan
A 20-month break-even is not helpful if you plan to sell in 12 months.Loan features
Offset accounts, revolving credit and split fixed terms can change what a lower rate is really worth.Hidden traps
See our guide to common refinancing traps for what to look out for.
Stay or Switch? Using Your Bank's Retention Offer
Often your current lender will offer a lower rate to keep you. Run the same calculation. A retention rate with little or no cost can beat a bigger rate drop that costs thousands to reach. Our checklist on what to check before switching your home loan helps you compare both options fairly.
People searching for switching home loan NZ tips, mortgage switching advice, or how to approach switching mortgage NZ lenders will find the same principle applies: calculate the break-even point first, then decide.
When Switching Might Not Make Sense
- Your break-even period is longer than you expect to keep the loan
- The rate difference is small and the costs are high
- Changes to your income, debts or property value could limit your options
If a lender says no, our guide on what to do when a refinance is declined can help.
How to Refinance a Mortgage: The Short Version
If you are wondering how to refinance a mortgage, the process generally looks like this:
- Check your current loan terms, rate expiry date and break fee.
- Calculate your break-even point.
- Compare offers from other lenders and your own bank.
- Apply and provide your documents.
- Complete the valuation and legal steps.
- Settle, and let your old lender be repaid.
A full home loan mortgage refinance can take a few weeks, so start early if your fixed term is ending.
Three Simple Steps to Find Out If Switching Pays Off
Send us your current loan details
Balance, rate, lender and fixed-term expiry date.We run the break-even numbers
We compare options from across the market against your current loan.You decide
Switch, stay, or negotiate with your bank, with the facts in front of you.
Call 0800 626 685 or get in touch online to start. You can also browse more guides on our blog.
FAQ
How long should my break-even period be?
There is no single answer. A shorter break-even is better, and it should be shorter than the time you expect to keep the loan.
Can I switch lenders during a fixed term?
Yes, but you may pay an early repayment fee. Ask your lender for a written estimate before you apply.
Do I have to pay legal fees when I refinance?
Not always. Some lenders contribute to legal or valuation costs, but conditions can apply, such as repaying the contribution if you leave early.
Will refinancing affect my credit?
A new application is recorded on your credit file, and the lender will assess your income, debts and expenses again.
Is it worth switching for a small rate difference?
Sometimes, but only if costs are low or covered. Run the break-even calculation to see whether the saving outweighs the costs.
