Why you would need a calculator like this ?
There are many reasons to want to break a fixed rate mortgage contract.
But there are costs involved in breaking any contract. Firstly you need the other party's consent. And if they give it, they would want any costs they are have covered.
New Zealand law requires banks to allow a mortgage fixed rate contract to be broken. But it also limits them to only recovering costs, and not 'profiting' from the transaction.
When interest rates are falling, borrowers often want to quit their high-rate contract in favour of a lower rate one.
But even when rates are rising, there can be reasons to break a fixed rate deal. You may need to unexpectedly sell the underlying property (through a relationship break-up, or to move to new employment in another city or country, for example).
This calculator can give you an estimate of what the costs are likely to be.
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How it works
The limitation that banks cannot profit from the transaction sets a clear boundary on what is involved. But bank costs are confidential to them. Most won't supply their cost base generally, although they will offer specific dated details to individual customers.
The Government and the Ombudsman have both addressed this issue and suggested how these transactions should work. We use variable formulas depending on the bank you have selected, based on how they have disclosed how they make these calculations. (But we may not have the exact formulas because not all of them are completely transparent on this detail.)
What it does
This calculator generates an estimate. Only the bank itself can give you exact numbers. Our estimate figures out the bank's cost of money based on wholesale swap rates and the change between the start date commitment you made for the original term, and a recalculation based on the revised end date. We also add the bank's fees for this type of transaction.
We need you to enter all the white fields for your loan. Your regular payment amount is one of them, but the calculator will suggest the minimum that is likely to be valid (for a normal table mortgage). (There are error checking limits and the maximum can only be how much you need to pay to may it off in the current fixed rate period.) The regular payments from the start are assumed to be the only payments you have made. If you have made some extra payments, the results of this calculator may not be valid. Similarly, if you have arrears, the results below may not be valid.
(The "Date of Prepayment is the date you want to break the contract.)
Mortgage Break Fee Calculator
What it doesn't do
Some banks may use a different basis to the one we are assuming they use, and of course that will give a different answer. The variation should be quite small however. If it is not, please let us know and we will reassess how this calculator works for that bank. Do not use this calculator to work out a final result. Only your bank can do that. This calculator can only supply an estimate. It does not account for any extra payments you may have made along the way.
Rates (including swap rates) can change quickly, and amounts have to be calculated on the actual day the early repayment is being made.
The treatment of swap rates, particularly where there’s not an exact match, involves quite a bit of work and isn’t necessarily something we will capture exactly in this tool, so it’s important to understand that this tool is not an exact match to what the bank would calculate.
THIS TOOL CANNOT ESTIMATE FOR INTEREST ONLY LOANS. It will only work for table loans.
How to use
The calculator starts up with default values for all fields, you need to change these to suit your loan. There are minimums and maximums for all fields based on what most mortgages look like. You will be alerted if you violate any of these limits. Also, there are checks in the calculator to ensure that the inputs entered by you constitute a valid mortgage. If not, the calculator will alert you. Please read these alerts to fix the inputs to ensure the input variables represent a valid mortgage.
We are interested in any feedback you may have. Please send to david.chaston@interest.co.nz