1.4. Breaking a National Bank fixed rate loan

You can break your National Bank fixed rate loan, but you may need to reimburse National Bank for costs incurred in breaking the loan contract. Break costs typically relate to the lost profit opportunity that the bank has locked-in with your current fixed interest rate contract.

What breaking your fixed rate really means

Breaking a fixed interest rate loan really means that the loan is repaid within its fixed interest rate term.

We have explained National Bank's repayment tolerance which allows you to repay more than your contracted loan repayments during the fixed interest rate term.  However, if you want to repay more than the tolerance you will be breaking the terms of the contract with National Bank and this may trigger an economic cost recovery by the bank.  

Some common situations that cause a fixed rate loan to be broken

1. You sell your house and not able to transfer the loan to another property.  This may happen if you decide not to purchase another home.
2. You refinance your loan with another lender.
3. You chose to repay National Bank's loan with another lower cost National Bank loan.

How the break cost is calculated

The calculation is complex.  The factors that influence the calculation are;

• the loan size,
• the fixed interest rate,
• the unexpired term of the contact, and
• the underlying cost of funding the loan.

The rule of thumb

• If prevailing interest rates have fallen below your fixed interest rate then you will probably pay a break fee. You may also be charged an administration fee.
• If prevailing interest rates have risen above your fixed interest rate then you may only be charged an administration fee.

Get a quote from National Bank then do the sums

You can either get us to request a quote from National Bank, or you can get the bank to give you the figure directly. 

When you know how much it might cost to break your fixed rate loan you can do a quick calculation using our break cost calculator.  This will tell you how many months it will take you to recover a break cost by paying a lower interest rate.

Next: Variable interest rate loans Previous: Holding a fixed interest rate