Fixing a mortgage rate buys a known repayment for a set term. The price of leaving early — selling, refinancing, or chopping the balance more than the loan allows — is a break cost. It is not a fine for changing your mind. It is the lender recovering the difference between the rate they funded your loan at and the rate they can now lend that money at. When market rates have fallen, that difference can be thousands of dollars; when rates have risen, the break cost can be small or nil.
The usual ingredients
Most New Zealand break-cost formulas look at how much of the fixed term is left, the size of the balance you are breaking, and the gap between your contracted rate and the current wholesale or reinvestment rate for that remaining term. A large balance, a long remaining fix, and a sharp fall in rates is the expensive combination. A small remaining term or a rate that has risen since you fixed is the cheap one. The exact formula is in your loan contract; it is not a single industry number, and two banks can quote different costs on similar loans.
You can trigger it without selling the house
Break costs are not only for a sale. Refinancing to another bank, switching to floating, making extra repayments above the allowed threshold, or splitting and re-fixing part of the loan can all count as a break. Many fixed products let you pay a modest extra amount each year — a percentage of the balance or a dollar cap — without a cost, and charge beyond that. If your plan is to throw a bonus or a KiwiSaver leftover at the loan, read that clause before you fix for five years. Offset and revolving facilities are the usual way to keep flexibility without breaking a fix; they are a different product, not a free feature of every fixed rate.
Ask for a quote before you assume
Lenders can usually give an indicative break cost for a proposed date. Ask for it in writing if you are deciding whether to sell, refinance, or wait out the term. An internet article cannot price your loan: the inputs are your remaining term, your rate, and today's wholesale curve. Treat social-media examples as illustrations of scale, not as your figure.
How this should change the fix-versus-float choice
If you might sell, renovate and upsize, or receive a lump sum you would want to apply, a shorter fix or a split (part fixed, part floating or offset) often costs less in optionality than a slightly lower five-year rate you cannot leave. If your income and housing plans are stable, a longer fix is a repayment-certainty tool, not a bet on the OCR. The mortgage calculator will show the repayment at a given rate and term; it will not show the break cost, because that cost depends on future rates. Use the tool to check whether the repayment is survivable. Use the contract and a quoted break cost to check whether the fix is survivable if life changes.
Floating is not free either
Floating avoids break costs and usually allows extra repayments, but the rate can move against you in the same month your expenses rise. The useful comparison is not “fixed is safe, floating is cheap”. It is whether you value a known repayment more than the option to change the loan, and whether you can absorb a higher floating rate without selling. Neither choice is financial advice; both are trade-offs you can run as numbers before you sign.