Banks are pretty clever. They’re aware that the rates have dropped a lot recently and therefore a lot of people will be wanting to try and secure these lower rates for themselves.

So to stop massive numbers of people suddenly jumping to a lower interest rate (meaning the bank loses money), they invented ‘break fees.’

What are break fees?

They’re a penalty fee designed to make it uneconomic to break fixed interest rates in order to get lower rates while staying at the same bank.

Here’s the trick though.

If you’re prepared to change banks then the new bank will offer you a new client cash contribution and this will sometimes make it worthwhile.

The cash contribution could pay for the break fees and legal costs, causing it to be a neutral cost transaction while keeping the longer term benefit of lower interest rates.

One caution

If you’re considering changing banks, ask your current bank whether you’ll need to pay back the cash contribution they gave you when you originally signed up for the loan.  This usually applies to mortgages you’ve had 3 years or less.

This strategy works best if you have been at your current bank for 3 years or more.

Remember, any change in your mortgage is a great opportunity to start or adjust your budget/spending plan and make sure that your new structures are the best that they can be going forward.