Edge Mortgages founder Glen McLeod says he would 'love' to see interest rates dip below four per cent.

If you fixed your mortgage in the middle of last year, you may be gritting your teeth as banks roll out ever-lower interest rate specials, with anything as low as 4.65 percent being offered for two year fixed rates.

But breaking a fixed-term mortgage comes with a cost. So how do you figure out if it's worth it?

The way banks calculate fees to break your mortgage is a complicated process.

With Edge Mortgages seeing a big increase in the number of people inquiring about breaking their loans, Glen says that in most cases people would not avoid paying the interest they had signed up for on a fixed rate, but the move could make a difference to their cash flow.

"If the break cost is $1000 and you have 12 months to run on your loan and payments come down by $80 a month, that only saves you $960 and all you are doing is prepaying the interest. Banks never lose on it."

The answer sometimes lay with asking another bank to stump up a cash contribution to cover the break fee. Many of the banks offer tempters of a couple of thousand dollars to people who switch their loans.

Many of the banks also had teams of people working to keep customers, so someone who threatened to leave might be able to negotiate a better deal from their own bank.

"It's a fine line the banks are playing because if they set a precedent and start paying break costs for customers it ends up with what's the point in having fixed rates in the first place?"

Glen dealt with one customer this week who was faced with a $6000 break fee. Another bank offered $4000 to move, but the customer had to pay legal fees as well. They were fixed in the late 5 per cent interest rate range and were looking at moving to 4.35 per cent. "The difference is quite large but you have got to balance it out."

We recommend you talk to a mortgage adviser who can help you work out what the best option is in your particular case.

Watch Glen talk about breaking your mortgage:

glen mcleod stuff

Source: Stuff.co.nz