Fixed home loan break cost – how much does it cost to end a fixed loan?

A fixed loan break-cost calculator could help you work out what kind of fee you'll be charged when you break a fixed rate loan contract early, usually due to selling a property or refinancing.

Unfortunately, this calculator can't exist. This is because a fixed rate break cost is always personalised and based on the specific details of your loan. These details could include the following:

• Total loan term
• Loan length remaining on your fixed loan contract
• Total value of the loan
• The interest rate that you fixed at
• Current fixed interest rates on offer from that lender

While we can't give you an exact break-fee estimate, we can help you understand how banks calculate your break fee to give you an indication of what you may pay.

Can I end my fixed rate early?

Finder survey: How long do fixed rates on home loans last for Australians of different ages?

Why do you pay a break cost on a fixed rate home loan?

Lenders charge you fees to compensate for any financial losses they incur as a result of breaking your fixed rate home loan early.

If you decide to break that contract by switching loans or lenders (or selling the property) before the fixed period has ended, your existing lender will want to be compensated for the financial loss they incur. You have promised to repay them interest for 3 years, and now you are ending the loan early. They can re-lend that money to someone else, but they may not make as much money if their fixed interest rate is now lower.

This is why you pay a fee – to compensate them for the lost interest you committed to pay in your loan contract.

What is considered "breaking" a fixed home loan?

• Switching to a different home loan product with the same bank or lender
• Switching to a different home loan with a different bank or lender by refinancing
• Making extra home loan repayments in excess of an accepted amount
• Repaying the loan in full before the end of the fixed rate period (due to selling the property or refinancing)
• When your loan falls into serious default, requiring it to be repaid immediately

What fees do I have to pay?

There are a few fees to pay when you break a fixed home loan.

There is often a penalty fee, which is set by each bank or lender, and usually costs $1-200. Not all banks charge this fee.

Next, there is an interest adjustment to cover the interest losses to the lender, as explained in our examples. This can be the most expensive part, often running to thousands (or even $10k+), depending on the interest rates at the time.

There may be a fee to cover the economic costs to the lender, which they charge to reimburse them for the cost/time to the lender of ending your contract early. Again, these are usually in the range of $1-200.

And lastly, there are lender fees and charges, which are set by each lender individually, and may be waived if you are ending the fixed rate loan, but staying with the same bank on a variable rate loan.

Expert insight

"A fixed home loan may give you the security of knowing your repayments for the period you decide to lock in your interest rate however life can change during this time and you may need to break your fixed rate loan. Contacting your lender is the first step to understanding what your fee will be. If you are moving homes, then instead of breaking your loan, you can "port" your loan known as security substitution. If you need to break out of your fixed rate loan then weigh up the costs versus the benefits to make an educated decision."

Aaron Christie-David

Managing director and mortgage broker, Atelier Wealth

How does your lender calculate your fixed rate break costs?

There are some complicated formulas and calculations involved in calculating this rate – in fact, it's so complex, the amount actually changes daily.

Breaking a home loan during a fixed interest period can be expensive, which is why you should ask your lender how much it will cost you to break your fixed interest rate home loan before you decide to do it.

If you're considering getting a fixed rate home loan but you're concerned about flexibility, you might want to consider a variable mortgage instead.

See how much you can save with a lower rate

As for how they calculate your fixed rate, it gets a little complicated, but bear with us. Lenders will typically finance your home loan on the wholesale market with a fixed maturity date. At the time you switch loans or repay your loan early, the bank will use the Bank Bill Swap Rate (BBSR), or BBSW, to calculate your early repayment cost or break fee. Current BBSRs are displayed on the homepage of the Australian Financial Markets Association and the ASX website.

Let's say you decide to break a 3-year fixed loan at the start of the third year, when you have 1 year remaining.

Your lender will compare the original market swap rate with 1-year market swaps (as that is the period remaining on the loan).

If the current BBSR is less than it was at the time of fixing, the customer will have to pay the difference on the amount that was agreed to be paid for the remaining term – as your lender has an obligation to keep up their repayments on their wholesale funding for your loan. They have an agreement to pay their wholesale lenders a fixed amount, whether those lenders are on the market or an internal lending arm. These charges compensate for the estimated cost in lost interest and administration time.

If the current BBSR is more than it was at your original time of fixing, then you won't have to pay any interest penalties. Other fees and charges may still apply.

Example: Fixed rate break cost calculation when fixed rates have dropped

Example: Fixed rate break cost calculation when fixed rates have increased

How does fixing a loan for 1 year work?

With a fixed rate home loan, your rate doesn't change during the fixed period. After the fixed period ends, the loan reverts to a variable rate loan. With a variable interest rate, your lender can change your interest rate at any time.

Most Australian lenders let borrowers fix their rate for a period between 1 and 5 years.

If you want to fix your rate for a longer period, check out our guides on:

• 1-year fixed rate loans
• 2-year fixed rate loans
• 3-year fixed rate loans
• 4-year fixed rate loans
• 5-year fixed rate loans

Compare your refinancing options

If you are thinking about breaking a fixed home loan, your first step is to contact your lender and request a quote for breaking your loan inclusive of the early repayment cost. Then, compare the interest costs of a potential new loan.

You should also weigh the pros and cons of fixed and variable rates when making your decision to switch.

To make sure you get accurate and helpful information, this guide has been edited by David Gregory and reviewed by Aaron Christie-David, a member of Finder's Editorial Review Board.

Written by

Sarah Megginson

Head of editorial

As an authority on all things personal finance, Sarah Megginson is passionate about helping you save money and make money. She is an editor and money expert with 20 years’ experience and an extensive background in property and finance journalism. Sarah holds ASIC RG146-compliant Tier 1 Generic Knowledge certification, and she's a regular media commentator, appearing weekly on TV (Sunrise, Channel 7 news, Nine news), radio (KIIS FM, Triple M, 3AW, 2GB, 6PR) and in digital and print media. See full bio

Sarah's expertise

Sarah has written 191 Finder guides across topics including:

• Home loans
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