Lump sum mortgage repayments: keep the repayment or lower it?

A lump sum off your mortgage does the most good if you keep paying the same regular repayment afterwards, so the loan finishes sooner. On a $600,000 loan over 30 years at 5.06% (the average one-year fixed rate, rates as at 10 November 2026), a $20,000 lump sum after the first year saves about $62,136 of interest and 2 years and 1 month if you keep repaying $3,242.97 a month. If you ask the bank to recalculate instead, the repayment falls to $3,133.27, but the saving is only about $18,176, because the loan still runs the full term. Earlier is better: the same $20,000 after year 20 saves about $12,512. On a fixed rate, keep within your bank's yearly allowance, usually 5%, to avoid a break fee.

Two choices after a lump sum

When you pay a lump sum off a table loan, the balance drops straight away. What happens next depends on the repayment:

1. Keep the repayment, finish sooner. Your regular repayment stays the same. Because you owe less, more of each repayment goes to principal, and the loan is paid off early. This is generally what happens unless you ask for a change, but practice varies, so check with your bank. We have seen reports that Kiwibank does not recalculate the minimum repayment after a lump sum, but could not confirm it on Kiwibank's own page.
2. Lower the repayment, keep the term. The bank recalculates your repayment on the new, lower balance over the time left. You get more breathing room each month, but the loan still runs to its original end date, so the interest saved is much smaller.

Neither is wrong. The first saves the most money; the second helps cash flow. If you want the second, ask the bank: it will not usually happen automatically.

Worked example: lump sums on $600,000 at 5.06%

A $600,000 loan over 30 years at 5.06%, repaid monthly at $3,242.97. After 12 repayments the balance is about $591,243. A lump sum is paid straight after the 12th repayment. The rate is held at 5.06% for the whole term.

Keeping the repayment saves more than three times as much interest at every size. With a $20,000 lump sum, the recalculated repayment is $109.70 a month lower; over the 29 years left that is real breathing room, but it gives up about $43,960 of extra saving.

The difference comes from what happens to the money you would have paid. Under "keep the repayment", the $109.70 a month keeps going off the loan, compounding the saving. Under "recalculate", it stays in your pocket.

Run your own figures, with either choice, on our extra repayments calculator.

Timing: the earlier the better

Because interest is front-loaded on a table loan (see how mortgage repayments work), a lump sum early in the loan removes interest for longer. Here is a $20,000 lump sum at different points in the same loan, keeping the $3,242.97 repayment:

The first year's saving alone is easy to see: $20,000 at 5.06% is about $1,012 of interest a year that you no longer pay. That saving then compounds over every year left.

Regular lump sums

Paying a lump sum every year adds up quickly. A $10,000 lump sum after every year of our example loan, keeping the $3,242.97 repayment, clears the loan in about 19 years and 6 months and saves about $220,966 of interest at 5.06%.

Timing within the year

Interest is calculated daily at most banks (ANZ: "Interest is calculated daily, so every day you have a reduced balance counts"). So within a year, a lump sum paid today saves a little more than the same amount paid in a few months. That said, on a fixed rate the bank's allowance year matters too: ANZ's year "runs from the date, or the anniversary of the date, that your fixed rate period started". A lump sum just before the anniversary and another just after can fall in two separate allowance years.

Fixed-term limits and break fees

On a floating rate, you can usually pay a lump sum at any time without a fee. On a fixed rate, banks cap how much extra you can repay each year without a break fee. In alphabetical order:

Read on the banks' pages, 10 November 2026. On our $600,000 example, 5% is $30,000, which is why the largest row in the table above stops there. Above the allowance, a break fee may apply; see break fees and the break fee calculator.

Larger lump sums

If you expect a larger sum, such as an inheritance or a property sale, there are ways to avoid a break fee:

• Wait for the fixed term to end. When a fixed term expires there is no fixed rate left to break, so you can usually repay as much as you like before refixing. See how to refix.
• Keep part of the loan floating. Kiwibank suggests keeping part of the loan on a variable rate if you expect to repay more than the allowance. Our split loans guide shows how.
• Park it in an offset account. Money in a linked offset account reduces the interest on the floating loan while staying available. See offset mortgages.

Which part of a split loan should the lump sum go to?

If your mortgage is split into parts, you choose where a lump sum goes. A few things to weigh:

• Floating parts take any amount. There is no allowance to stay within and no break fee.
• Higher rates save more. A dollar off a part at a higher rate saves more interest than a dollar off a part at a lower rate. As at 10 November 2026, floating rates are the highest on offer, which makes a floating part a natural home for a lump sum.
• Fixed parts each have their own allowance. Check how the 5% is measured: ANZ uses the current loan amount, Kiwibank the loan amount at the start of the fixed term, and BNZ the loan balance.
• Expiring parts are free. A part coming off its fixed rate soon can take a large lump sum at expiry with no break fee.

A short checklist

• Is the loan, or this part of it, fixed or floating?
• If fixed, how much of this year's allowance have I already used, and when does the allowance year start?
• Do I want to keep my repayment (save more) or lower it (more cash each month)? Tell the bank which.
• Will I still have an emergency buffer afterwards?
• Would the money save more on a higher-rate debt?

This guide is general information, not financial advice. Rates as at 10 November 2026, the average of the five main banks' lowest advertised one-year fixed rates in the interest.co.nz table. All examples assume the rate never changes, which on a real loan it will at each refix.

Questions people ask

Does a lump sum lower my mortgage repayment?

Usually not by itself. Most loans keep the same repayment and finish sooner. If you want a lower repayment instead, ask your bank to recalculate it on the new balance over the remaining term.

Which saves more: keeping the repayment or lowering it?

Keeping it. On $600,000 at 5.06%, a $20,000 lump sum after year 1 saves about $62,136 if you keep paying $3,242.97, against about $18,176 if the repayment is lowered to $3,133.27.

How much can I pay off a fixed loan in one go?

It depends on the bank. ANZ allows one lump sum a year of up to 5% of the current loan; BNZ and Kiwibank allow up to 5% a year. We have not confirmed ASB's or Westpac's limits. Larger amounts may attract a break fee.

When is the best time to make a lump sum repayment?

As early as you can, because interest is charged daily on the balance. On a fixed rate, the end of a fixed term is a good moment for a large sum, because there is no fixed rate left to break.