What is fixed-rate break cost?
A break cost is the fee a lender charges when you exit a fixed-rate loan before the term ends — calculated as the difference between your fixed rate and the lender's current funding rate over the remaining term, applied to the loan balance.
A break cost (or 'economic cost') is the lender's compensation for losing the interest stream they expected when you signed a fixed-rate contract. It's not a flat fee — it's calculated by comparing your fixed rate against the lender's current wholesale funding rate over the remaining fixed term, multiplied by the loan balance.
When rates have risen since you fixed, the break cost is usually zero or trivial (the lender can re-lend at a higher rate). When rates have fallen, break costs can be substantial — $5,000-$30,000+ on a typical $400,000 fixed loan with 2-3 years remaining.
Break costs apply on refinance, voluntary early payout, or selling the property. The exact formula is in your loan contract; lenders will quote the current break cost on request. Plan ahead — a refinance window in the last 30 days of a fixed term often avoids the break cost entirely.
break fee · economic cost · fixed rate exit fee
- Fixed-rate home loan — A fixed-rate loan locks the interest rate for a chosen term — typically 1, 2, 3 or 5 years — so repayments don't move wi…
- Refinance — To refinance is to replace your existing home loan with a new one — usually at a sharper rate or with better features — …
- Discharge fee — A discharge fee is a one-off administrative charge ($300-$700) your existing lender levies when you pay out the loan — c…
General information only — not personal financial advice. Verified against https://ratesniffers.com.au/glossary on 2026-06-01.