Here are six things almost no one in this situation thinks to check
I’m getting this question a lot at the moment, and it’s almost always from the same group of people - those with fixed rates rolling off between Christmas 2026 and mid-2027
They’re on rates that have a 4 in front of them, and they’re staring down the barrel of rates with a 5… and wondering whether they should take action now to lock in some certainty for the next few years.
If that’s you, it’s a great question to be asking. Plenty of people get a reminder from their bank (or their adviser) a few months before the rate expires and think “oh great, I’ve got a couple of months to lock this in”.
Looking ahead, doing the numbers early, and making a deliberate choice to set your lending up for the next 12 months is exactly the kind of thinking that will save you money in the long term.
As with anything in lending, this is not a simple question with a simple answer, so here’s what I’d say to you if you came to me…
Everyone is scared of break fees but quite often they are very small or nothing at all
A break fee exists to compensate the bank for the loss it takes if you break or exit your fixed rate early. Basically if wholesale rates (which is the cost that the bank pays to borrow the money themselves) drop, then the loss is real and you’ll be charged a fee.
If wholesale rates have risen since you fixed, the bank can often relend that money at a higher rate than you were paying.
At the moment, the latter is often the case, and what a lot of our clients are finding is that the fee is minimal or next to nothing, so it’s always a great question to ask.
A break fee is always calculated on the day of breaking, so that’s an important thing to bear in mind as you’re making decisions. It’s relatively unlikely that things change quickly, no one can predict the break fee in a month from now.
Task 1: Get the break fee confirmed
The opportunity cost, what we’re all looking to minimise
If you fixed in 2025 you are most likely sitting on a rate that is cheaper than most rates on offer today. Breaking early means that you’re giving up that cheaper rate up right now for every month that’s left on your term.
What you lose here in rates you’re gaining in certainty, and that’s the key driver. You’re paying a known cost now to avoid a higher, potentially unknown cost in 2027.
So the question isn't "are rates going up?" It's "how much cheaper is my current rate, how many months are left on it, and is that gap smaller or larger than what I think I'd save by locking in early?"
With a $500K loan, a 0.5% difference is roughly $2.5K a year, so if you've got twelve months left, you're weighing that against what you think the market will look like this time next year.
Task 2: Know how much you might be “giving up”
How long since your bank offered you cashback?
If you made a purchase, took out new lending, or agreed to a cash contribution from your bank in the last 3 or 4 years, you almost certainly agreed to stay put for a set period of time.
A review of this is a logical thing to do alongside the overall check of your situation, and often there are some strong options out there in this space.
Everyone is a bit different; I’ve had clients where the rate conversation made less sense than the cashback, and vice versa. I’ve also recommended people stay with their current bank because the amount to repay would be significant.
Task 3: When did you last receive a cashback and how much might you need to repay?
Where are you going, with your own goals?
In the last month I’ve had clients approach me in this situation who are changing their income-earning capacity, whether that’s an increase, a decrease, or a change.
Plenty of people are looking to leverage their skills into a business or even a side hustle, and that impacts the way their lending should be set up.
Another client is actually selling a rental property and wants to minimise the impact of that on their lending structure while still maximising their remaining lending.
In their situation even though they’ve got a fixed rate coming up in April 2027, they are also looking to make other changes, so with all of these things considered it makes sense to break their current loan and also adjust their structure.
Task 4: How have your goals changed and what’s most important to you?
Where might rates actually be going?
The Reserve Bank lifted the OCR to 2.75% on 2 September, its second consecutive increase, with June quarter inflation sitting at 4.1%.
They expect that inflation will start to drop away and that they may only need to hold the rate in October but do expect to lift to 3.00% in December with a peak of roughly 3.25% expected around the middle of 2027.
On the ground that means that the cheap end of the market has already shifted upwards. As at mid-September the lowest one-year fixed rate across the main banks was 4.79%, with two- and three-year rates sitting at 5.19%-5.29% and five years at 5.49%.
If the OCR does what the Reserve Bank is signaling, the mid 5% range is where a lot of borrowers will realistically be landing.
But the big thing here is that nobody actually knows. Bank economists have been revising their picks all year and by December we may have a completely different outlook.
This decision isn’t actually about trying to get the right fit in the market.
It’s more about deciding whether or not certainty is worth paying for in your particular situation or whether you can absorb a slightly higher interest rate in 2027.
Task 5: How much uncertainty are you willing to take on?
Is your current bank still the right one for you?
With loan products, offerings, and tweaks by every bank adjusted all the time, it’s also worth considering whether your bank is still the right fit for you, particularly if you’re going through the process of a review anyway.
As at this week, rates are still a bit variable across the banks and this is common in a rising interest rate environment where there is lots of competition
Different banks have different rates, different cash contributions, different servicing fees, and different appetites alongside their products.
Often what I see when someone hasn’t reviewed their situation for several years or more is that there are a lot of optimizations that we can take to make sure their situation leaves them better off.
Task 6: Check what other banks offer that might be better for you
So, should you break?
Maybe. It depends on your break cost, your remaining term, your claw back position, your goals, bank product offerings, and how much you value certainty.
There are lots of factors and I think too many people consider just the rate or the break cost.
Here’s what I really want you to take away from this…
My clients who end up in the strongest position in the medium term are almost never the ones who picked the best rate. Nobody can do that, not even me (even though I try, because that’s fun for a mortgage nerd).
They’re the ones who treat their lending as something important to be actively managed, rather than something that happens to them when a bank sends them a reminder.
That’s what I’d love to see more people move to.
Your home loan is most likely the largest financial commitment you’ll ever hold, and every decision you make about it is important.
So if you do one thing after reading this, work through your six tasks:
Get your break fee confirmed by your bank
Work out what you’d be giving up by leaving your current rate early
Check when you last took a cashback and what you’d need to repay
Get clear on how your goals have changed since you last fixed
Decide how much uncertainty you’re comfortable carrying into 2027
Find out what other banks are offering right now
A couple of those are a ten minute phone call to your bank.
The rest are worth a proper think over a weekend, ideally with whoever you share the mortgage with (or a trusted person if you’re solo).
If your fixed rate rolls off in the next 6-12 months and you’re unsure about the options out there for you, have a chat with an adviser.
We’ve got some of the best in the business at My Mortgage and they’re always happy to do a sense check, and carry out all these tasks for you, of course!
Remember in the lending world there is no way to be sure about a rate, but being deliberate about it is something you can be sure about.
