Switching banks for your mortgage: costs, cashback and clawback

Switching banks, or refinancing, means a new lender repays your old loan and you start a new one. It tends to pay when your fixed rate is ending (so there is no break fee) and the new bank offers a better rate, a cash contribution, or both. Mid-term it is harder: on a hypothetical $450,000 loan fixed at 6.00% with a year to run, moving to 5.06% (the average advertised one-year fixed rate, as at 10 November 2026) saves $4,223 of interest over that year, but our safe-harbour estimate of the break fee is $4,083, before legal costs. Cash contributions can tip the balance, but they usually come with a clawback: Kiwibank’s runs four years.

What switching involves

When you refinance to another bank:

1. You apply to the new bank, which assesses you much as it would any new borrower, including your income, expenses and the property’s value.
2. If approved, the new bank’s lawyer (or yours) arranges to repay the old loan on settlement day and register the new bank’s mortgage over your property.
3. The old bank discharges its mortgage. It may charge a discharge fee and, if you are on a fixed rate, a break fee.
4. You start the new loan, usually with a new fixed rate and a new repayment.

It is a bigger job than refixing with your current bank, which usually takes a few clicks. The question is whether the gain is worth the cost and effort. A useful first step is to ask your current bank whether it will match a competing offer.

The costs of switching

Kiwibank also notes that its refinancing package does not cover your existing lender’s break and discharge costs. Ask any new lender exactly what it will pay towards, and get the old bank’s break fee quote in writing on the day you plan to switch.

Cash contributions and clawbacks

Banks sometimes pay a cash contribution, often called a cashback, to win a new home loan. What we could confirm:

• Kiwibank (bank source): “Our cash contribution claw back is set at four years rather than three.” It applies if you sell and repay, or switch banks, within four years of receiving the cash contribution.
• Market-wide (RNZ, 15 August 2025; single secondary source): cash back offers “give up to about 0.8 percent of a home loan’s value”, and banks may ask for “some or all” of it back if you leave early, sometimes for up to four years. RNZ reports the Commerce Commission recommended that lenders claw back cash contributions on a pro-rated basis, and that advisers see many different calculation methods in use.

We could not confirm current cash contribution terms for ANZ, ASB, BNZ or Westpac from their own pages. Offers change often and are frequently negotiated case by case. Before you accept one, ask:

• How much, and when is it paid?
• How long is the clawback, and is the repayment the full amount, a pro-rated share, or a stepped schedule?
• Does it apply if you sell, as well as if you switch?
• Do you have to fix for a minimum term, or keep other products such as a transaction account?

Treat a cash contribution as a discount on the loan, spread over the clawback period, rather than as free money. If you are likely to sell or move again within that period, the real value may be much lower.

Worked example: mid-term or at expiry?

Take a hypothetical $450,000 loan with 25 years left, fixed at 6.00% with 12 months of the fixed term to go. The repayment is $2,899.36 a month. Another bank offers 5.06% for a year (the one-year fixed average, as at 10 November 2026).

The saving and the break fee are almost the same, and that is not a coincidence. The regulations’ formula measures the bank’s loss as roughly the interest gap over the rest of your fixed term, which is exactly what you would save by switching. Once legal costs are added, switching mid-term on rate alone loses money in this example. It only pays if a cash contribution covers the costs, or if the bank’s actual fee (which may use wholesale rates) is lower than our estimate.

Switching when the fixed term ends

Now say the fixed rate has just ended, so there is no break fee. Your bank offers 5.35% for two years (the two-year fixed average, as at 10 November 2026) and another bank offers a hypothetical 5.05%. Over the two years, interest on $450,000 over 25 years would be $47,238.22 at 5.35% and $44,551.34 at 5.05%: a saving of $2,686.88. That is worthwhile if legal and other costs are covered or modest, and the gap may grow if you stay with the new bank after the two years. A cash contribution on top makes it more attractive, so long as you are confident you will stay beyond the clawback period.

A checklist before you switch

• Check your fixed-rate end dates. If your loan is split, each part may expire at a different time. Switching at expiry avoids break fees.
• Get your current bank’s best offer. Ask for a retention rate or contribution before you move.
• Get a written break fee quote and compare it with our break fee calculator.
• Compare the whole package: rate, cash contribution, clawback terms, legal costs, discharge fees, and any account fees.
• Check you would be approved. The new bank reassesses you, and lending criteria may have changed since you first borrowed.
• Think about the next few years. If you might sell or need to restructure, a long clawback may cost you more than it gains.
• Compare rates fairly. Use our fixed vs floating calculator to see repayments at each offer, and remember that advertised specials usually need at least 20% equity.

Rates move with the market and with each bank’s funding costs, as our guide to the OCR and mortgage rates explains. A good offer today may not be the best offer at your next refix, so the switching question comes up again each time a fixed term ends.

This is general information, not financial advice. Rates as at 10 November 2026.

Questions people ask

Is it worth switching banks for a lower mortgage rate?

Often, when your fixed rate is ending, because there is no break fee. Mid-term, the break fee usually cancels most of the saving: in our example a $4,223 saving was matched by a $4,083 estimated break fee, before legal costs.

What is a cashback clawback?

It is the bank asking for some or all of a cash contribution back if you sell or switch within a set period. Kiwibank’s clawback period is four years. RNZ reports clawbacks of up to four years across the market.

How much are legal fees to refinance?

Kiwibank says the legal component could be anywhere from $900 to $2,000 plus GST and disbursements, and offers a refinancing package that is free if you meet its criteria. Ask each lender what it will cover.

Should I ask my current bank first?

It costs nothing to ask your current bank for its best rate or a retention offer before you move. Compare its answer with the whole package from the new bank: rate, cash contribution, clawback terms, legal costs and fees.