The key is to compare the total financial benefit of switching your mortgage, not just the lower interest rate or the cash incentive. In New Zealand, a lender offering a lower rate and a cash contribution can be a great deal, but legal fees, early repayment charges, cashback clawbacks and the loan structure can change the result significantly.

The best way to work it out is to calculate how much better off you'll be over the period you realistically expect to keep the loan, after allowing for every switching cost.

1. Add up all the costs and benefits

Use this checklist for your current lender versus the new lender.

Item	What to include
Interest savings	Interest you'll save at the new rate over your comparison period
Cash contribution	The actual amount the new lender will pay you
Legal fees	Solicitor's fees for refinancing and registering the new mortgage
Break fee	Any early repayment or fixed-rate break cost from your current lender
Discharge and admin fees	Fees for closing the existing loan and setting up the new one
Cashback clawback	Any contribution you must repay your current lender if you leave before its required period
Loan changes	Differences in fees, offset accounts, revolving credit, or other features
Future rate risk	Whether the new rate expires sooner or leaves you exposed to a higher rate later

Important: Don't assume the entire cash contribution is a profit. It may be offset by fees, and it may come with conditions requiring you to stay with the new lender for a specified period.

2. Calculate the break-even point

A useful first calculation is:

Net benefit=interest saved+cash contribution−all switching costs\begin{aligned}
\text{Net benefit} ={}& \text{interest saved}\
&+ \text{cash contribution}\
&- \text{all switching costs}
\end{aligned}Net benefit=​interest saved+cash contribution−all switching costs​

If the result is positive, switching may save you money. If it is negative, staying may be cheaper. For a proper comparison, also account for changes in loan balances, repayments and future interest rates.

Here's a simple hypothetical example.

Illustrative figures only — not current market offers

Mortgage balance

$600,000

Rate reduction

0.40%

Interest saving estimate

First year, roughly

+$2,400

New lender's cash contribution

+$4,000

Legal and other switching costs

−$1,500

Illustrative first-year benefit

Before any other costs or conditions

$4,900

The $2,400 interest saving is an approximation based on the starting balance. Your actual savings will change as you make repayments and the balance declines. The calculation also assumes the rate difference applies for the full year.

The key question is whether the deal remains worthwhile over the period you plan to stay with that lender.

3. Compare the loans over the same period

Don't compare one loan over 30 years with another over 25 years, or assume a lower repayment necessarily means a cheaper loan. A longer term can reduce the monthly repayment while increasing the total interest paid.

Compare both loans using:

• The same opening balance and remaining loan term.
• The actual interest rates and dates each fixed rate expires.
• The same repayment frequency and repayment amount, where practical.
• All switching fees and cash contributions.
• The remaining loan balance at the end of your comparison period.

For a fixed-rate mortgage, compare the period until your next likely refix or refinance, and also consider a longer horizon if you expect to stay with the lender. A lower rate today doesn't guarantee the lowest rate when the fixed term ends.

New Zealand's Consumer Protection guidance explains that breaking a fixed-term mortgage can incur a fee, and you should ask your existing lender for the amount before proceeding. Mortgages and home loans

4. Watch out for these four common traps

• Cashback clawbacks: Your existing bank may require you to repay some or all of a previous cash contribution if you leave early. The new lender may also have its own minimum-stay requirement. Check both contracts. Mortgages and home loansMortgage advice
• Break fees on fixed loans: Ask your current lender for a written payout and break-fee estimate. Don't rely on a generic estimate, as the fee depends on your circumstances and market rates.
• A lower rate on only part of the mortgage: Compare each fixed-rate portion separately, including when each portion expires. Also check whether the new rate requires you to move everyday banking or meet other conditions.
• A longer repayment term: Make sure you aren't reducing repayments simply by stretching out the debt, which can increase total interest costs. How to find a good deal on your mortgage » SortedUnderstand the true cost​​

5. Work out your own numbers

You can use this calculator to make an initial estimate. Enter the details from your two offers; use the same comparison period for both. The interest estimate is simplified, so a lender's amortisation schedule or a mortgage calculator will give you a more accurate result.

6. Before you accept, get these answers in writing

Ask the new lender or mortgage adviser:

1. What is the total cash contribution, and exactly when must I repay it if I refinance again?
2. What are all legal, application, valuation and account fees?
3. What will my repayments be, and what will my outstanding balance be after two years?
4. Are the rates conditional on moving other accounts or taking a particular loan structure?
5. What happens when the fixed rate expires, and what fees would apply if I sell or refinance early?

The New Zealand Financial Markets Authority also recommends getting written advice on loan terms, fees, features and potential charges if you leave early. Mortgage advice

Want to compare your actual offers?

If you share a few details, I can help calculate a more realistic comparison for your situation.

You don't need to have every figure yet. In particular, the current fixed-rate expiry date and the break fee can make a substantial difference to whether switching now is worthwhile.