A fixed rate break cost is what your lender charges if you repay, refinance or sell before the fixed term ends. It is not a set fee: it reflects the lender’s loss when fixed rates have fallen since you locked in, so it can be nothing when rates have risen and thousands when they have dropped.

Break costs at a glance
Situation Likely break cost
Fixed rates have risen since you fixed Often little or nothing, beyond an admin fee
Fixed rates have fallen since you fixed Can be large, growing with the balance and the time left
Fixed term ends within weeks Small, because little time is left
You sell and port the loan to the next home Usually none, if the lender allows portability
Variable loan None: exit fees on new variable loans were banned from 1 July 2011

How is a break cost worked out?

When you fix, the lender funds your loan at wholesale rates for that term. If those rates fall and you leave early, the lender has to re-lend the money for less. The break cost recovers that difference for the time remaining, usually discounted to today’s value, plus an administration fee.

A quick estimate: multiply the balance by the fall in comparable fixed rates and by the years left. On a $600,000 balance with 2 years left, if comparable fixed rates have fallen by 0.6 percentage points, the rough figure is $600,000 x 0.6% x 2 = $7,200. The lender’s exact figure will differ because it uses wholesale swap rates and discounting, so treat the estimate as a guide only.

When is breaking a fixed rate worth it?

When the interest you save over the rest of the fixed term is more than the break cost and the switching costs. Using the same example, a loan fixed at 6.49% that could move to the 6% example rate saves about 0.49 percentage points a year, roughly $5,880 over two years. That is less than the estimated $7,200 break cost, so waiting would be better. If the break cost were $1,000, switching would win.

The answer can change month to month as rates move, so get a fresh estimate when you are close to deciding. Add the other refinance costs to the comparison. Deciding whether to fix again? See should I fix my mortgage now.

How can you reduce or avoid a break cost?

  • Wait for the fixed term to end. The guide to when your fixed rate ends covers what to do in the last three months.
  • Use your extra repayment allowance. Many fixed loans allow some extra repayments each year without a break cost.
  • Port the loan if you are selling and buying again; see home loan portability.
  • Fix only part of the loan next time. A split loan keeps a variable portion you can repay freely.

A real client file: preparing for the end of a fixed period

A real Links client file: a homeowner’s fixed period ends in three months. The loan is $540,000 on a home valued at about $900,000 (60% of the value), with 24 years left, and they have $45,000 in savings. Because the fixed term is nearly over, any break cost is small, so the useful work is lining up the next loan: a retention offer from the current lender, comparable offers elsewhere, and a timetable that switches on the expiry date. With the savings in a linked offset account, interest would be charged on $495,000 while the debt stays $540,000 and the money stays available. The guide to offset accounts explains how that works, and the full file is on the real client cases page.

Questions people ask

Do I pay a break cost if I sell my home?

Usually yes, if the fixed term has not ended, unless you port the loan to your next property.

Can a break cost be zero?

Yes. If comparable fixed rates have risen since you fixed, the lender has no loss to recover, though an administration fee may still apply.

Is a break cost tax deductible on an investment loan?

It can be, as a cost of the borrowing, but the treatment depends on your situation. Ask your tax agent.

Charles Touma gets the break cost quoted before anything is decided and compares it against the real saving, including the costs of switching. A free 30-minute call covers your fixed loan and the best time to move. General information only, not credit advice; lender policies and fees change, and your own figures decide what suits you.

Sources: Moneysmart, break fee; Moneysmart, fixed vs variable rates; ASIC RG 220, early termination fees, checked 20 October 2026.

General information only, not credit, legal or tax advice. Your situation is assessed properly before any recommendation. Government scheme details change; figures are current at the time of writing.