But brokers warn the net benefit is likely to be minimal for most and switching banks could see mortgage holders forced to repay cash incentives dished out by banks to lure customers.
Interest rates have fallen sharply in recent months and commentators are picking further cuts this year to the official cash rate as the Reserve Bank juggles near-zero inflation. Newly announced measures to raise investor deposits on Auckland rental homes and tax capital gain on properties sold within two years are also expected to open the door for further interest rates cuts.
Rate cuts mean lower loan repayments for homeowners, but could fuel Auckland's heated property market and drive record prices even higher, making life even tougher for the city's struggling first-home buyers.
Massey University banking expert Associate Professor David Tripe said it made sense that homeowners who fixed a year ago when rates were heading up would look to break fixed terms now interest rates were bottoming out.
The last time homeowners flocked to break was in late 2008/09 when interest rates fell after the global financial crisis, he said.
BNZ has just ended a two-year special rate of 5.15 per cent with 5000 Fly Buys points, while Sovereign has launched the same rate for one year. TSB is offering a temporary two-year rate of 5.29 per cent plus up to $2000 cash, and Kiwibank dropped its six-month, one-year and five-year rates yesterday.
Loan Market mortgage adviser Bruce Patten has seen a "significant lift" in inquiries in the past two months. About half of those clients went on to break fixed contracts, though for many the financial benefit was minimal after paying break fees and legal costs tallying thousands of dollars.
"The key thing is whether it's cost effective. Some people will do it for the gain of a few hundred dollars, others wouldn't do it unless it was a few thousand dollars."
Mr Patten said that about a year ago banks started making borrowers who got cash-back incentives sign letters agreeing to refund the money if they switched banks. Some were now being caught by these agreements, nullifying any potential financial gain.
Those who stood to benefit most from breaking had fixed in the past seven to 12 months.
"When people that were in the 6s have seen rates going below 5 per cent, [that] is when then they started to say, 'Hey, is there something I can do'?"
Mortgage Link broker Stuart Wills has also seen more clients wanting to break, with some achieving "quite significant deals".
It was worth considering for anyone locked into longer terms on above-average interest rates, he said.
"The banks don't want to lose the client so it's not necessarily a matter of refinancing to another lender. It's just about talking to the particular lender and getting them to resharpen their pencil."
Squirrel chief John Bolton said break fees were levied to recoup the real cost to banks of breaking a fixed-term deal.
Breaking mortgage saves $17,000
Bhavin Sanghavi, 34 stands to benefit by $17,000 by breaking his three-year fixed-rate term with Westpac bank.
The West Auckland homeowner has a combined mortgage of about $1.1 million over his New Lynn family home and Massey investment property. He fixed for three years in October at a rate of 5.9 per cent.
"Now we've had a look at it and the rates have obviously gone down since then."
Mr Sanghavi, an audit and assurance manager who is married with two young children, is using a broker to negotiate with Westpac to break his current contract and move on to a rate of between 5.1 and 5.2 per cent. The bank would charge a break fee of $13,000 for the privilege but he stood to save about $30,000 in interest repayments over the remainder of his three-year term. That meant a net benefit of about $17,000.
He recommended other homeowners do the numbers to see if they also stood to benefit from breaking.
"Especially if they fixed about a year ago because a year ago the rates were much higher than what they are now, so you would want to have a look at it at least."
Mr Sanghavi said Westpac was prepared to negotiate because it did not want to lose his business, and he was prepared to pay the break fees to obtain a lower interest rate.
"It's a win-win for both."
