Several economists are recommending that borrowers shopping for loans should now go for six-month terms.

The six-month rate is not only the cheapest at present, says ANZ’s latest Property Focus

“Similarly, because it is short, if fixed rates fall sooner and you want to lock in a longer rate, the early repayments cost is unlikely to be large and will be more than offset by the savings available when selecting a longer, lower fixed rate.”

At some stage in the near future it will be worth extending your fixed rate, says ANZ, but for now, long-term rates are too high.

Mortgage brokers have been seeing clients who stand to save money by breaking fixed rates, despite the costs involved. But lenders vary in the methods they used to calculate these fees so potential savings will vary.

Tony Alexander, chief economist at BNZ is cautious about breaking fixes in his latest weekly review.

“It may only be best to break when it looks like interest rates are at their lows. One way around that is to break now and go floating or to take a six-month fixed interest rate. If I was borrowing at the moment I would fix for six months and if I had a high fixed interest rate locked in for two years earlier this year I would keep it and look to break, then refix for seven years at a nice low level at some stage next year.

“It is impossible at this stage to know whether the cyclical low for interest rates will occur in January or December 2009 and frankly you can't even guarantee that at the time we will know rates are at their lowest levels. We may only know in hindsight.”

Banking Ombudsman Liz Brown has had a number of complaints about charges levied by banks to break fixed rates. The Commerce Commission is also looking at fixed rate exit charges.

Lenders do not have to follow the formula laid down by the Credit Contracts and Consumer Finance Act and they usually rise as interest rates fall.

Brown said in the latest issue of The NZ Mortgage Mag that some people had no choice but to break fixed rate mortgages if, for example, they had to move house. Borrowers considering breaking a fixed rate should ask their lender to give them a quote for the cost. If comfortable with the break fee they should consider breaking immediately rather than waiting until settlement day because the cost may have increased by then.