Weekend Money: Counting the costs of changing

If you're thinking of changing your loan, you're in good company. Figures cited by mortgage lenders show that Kiwis change some detail of their mortgages every 18 months on average, and change loans completely every five years.

Some points to consider:

Think about your own circumstances before you go chasing rates. If you're likely to move soon, then fixed rates won't suit as you'll pay a hefty penalty to break them. They usually don't allow extra repayments either - is it likely you'll earn more, inherit money or win on the greyhounds before the loan matures?

Shop around. Either use a reputable mortgage broker or get organised yourself to find the best deal. Don't forget the direct banks and non-bank lenders. Visit your current mortgage lender to see what they can offer. Have things changed since you first took out the mortgage? Can you consolidate more expensive debt such as credit card debt or personal loans?

Count the costs of switching. You may be saving on rate, but that's offset by the other charges you could be up for. These can include establishment fees for the new loan and any charges for setting up new accounts, valuation fees (say $300 to $500) legal costs for discharging your existing mortgage and putting a new one in place (around $600) and penalties for breaking any existing fixed term loans.

Most lenders now calculate penalties for fixed rate loans based on how early the loan is being repaid the loan and where interest rates are currently. If rates are moving rapidly, you can be caught out: Banking Ombudsman Liz Brown tells of one case where a bank customer was told the penalty would be about $300 but it eventually ran into the thousands three or four weeks later.

Too much hassle? If you've got any of your mortgage on a floating rate and have even a few dollars spare for repayments, you can trim a surprising amount off your total interest bill. Ask your mortgage lender to calculate the effect of changing your repayments or use one of the online mortgage calculators (on bank and other lenders' web sites).