Estimate the cost of exiting a fixed rate home loan early — and understand whether break costs apply to your situation.
Understanding Fixed Rate Break Costs in Australia
A fixed rate break cost — sometimes called an Early Repayment Adjustment (ERA) — is the fee a lender charges when you exit a fixed rate home loan before the fixed term ends. It arises because the lender funded your loan in the wholesale money market at a rate matching your fixed rate. When you break early, they must re-deploy those funds at the now-lower current rate, incurring a loss that they pass on to you.
When Do Break Costs Apply?
Break costs only arise when current interest rates are lower than your fixed rate. If rates have risen above your fixed rate since you took it out, the lender actually benefits from your early exit (they can re-lend at a higher rate), and most lenders charge no break cost in this scenario. This is why break costs were common after the pandemic low-rate period of 2021–22 and have been less significant as rates rose through 2022–2024.
How Break Costs Are Calculated
Lenders use a proprietary formula based on their actual wholesale funding costs, not the advertised rates. The simplified industry formula is:
Break Cost = (Fixed Rate − Current Wholesale Rate) × Loan Balance × Remaining Years
This is an approximation — the actual break cost from your lender may differ based on their specific wholesale funding rates (which differ from published rates), the exact days remaining, and their internal calculation methodology. Always request an exact break cost figure directly from your lender before making any decisions. The figure from this calculator is an estimate for planning purposes only.
Should You Pay the Break Cost?
Whether paying a break cost is worthwhile depends on comparing it against the savings from refinancing. If your break cost is $10,000 and refinancing saves $400/month, break-even takes 25 months. If you have only 12 months left on the fixed term, waiting is almost certainly the better financial decision. Use our Refinancing Calculator to model the ongoing savings and compare against the break cost shown here.
Common Triggers for Breaking a Fixed Rate
Borrowers most commonly consider breaking a fixed rate when: they want to refinance to a lower rate; they're selling the property; they want to make large extra repayments beyond the annual cap; they need to access equity; or their circumstances have changed (e.g. job loss, divorce, inheritance). In all cases, get the exact break cost from your lender first before proceeding.
Frequently Asked Questions
What is a fixed rate break cost?
A break cost (or Early Repayment Adjustment) is charged by your lender when you exit a fixed rate loan before the fixed term expires. It compensates the lender for the loss they incur when re-deploying your funds at current lower wholesale rates. Break costs can range from zero to tens of thousands of dollars depending on the rate difference, loan size, and remaining term.
When is there no break cost?
There is no break cost when current interest rates are equal to or higher than your fixed rate. In this scenario, the lender can re-lend the funds at the same or better rate, so no loss occurs. Break costs were minimal during 2022–2024 as rates rose sharply above the low fixed rates taken out during 2020–2021.
How accurate is this estimate?
This calculator uses a simplified formula based on the rate difference, loan balance, and remaining term. The actual break cost from your lender will differ because they use their specific wholesale funding rates (not the advertised mortgage rate), exact day counts, and their proprietary methodology. Treat this as a planning estimate only — always get the exact figure from your lender before making decisions.
What is the current wholesale swap rate?
Wholesale swap rates (BBSW — Bank Bill Swap Rate) are interbank lending rates that differ from advertised mortgage rates. As a rough guide, the wholesale rate is typically 1.5–2.5% below the standard variable mortgage rate. For the most accurate estimate, ask your lender for the current wholesale swap rate applicable to your remaining fixed term.
Can I avoid paying the break cost?
The most reliable way to avoid a break cost is to wait until your fixed period expires. Other options include: porting your loan to a new property if moving, making the maximum allowed extra repayments before breaking, or checking if the lender offers a 'break and refix' option at a reduced cost. Some lenders also offer a tolerance window in the final months of a fixed term.
Is the break cost tax-deductible on an investment property?
For investment properties, break costs may be deductible as a borrowing expense, depending on the circumstances. The ATO's treatment can vary — consult your tax adviser for specific guidance. For owner-occupied properties, break costs are not tax-deductible.
Do break costs apply when selling a property?
Yes. If you sell a property with a fixed rate mortgage and repay the loan from the proceeds before the fixed term ends, the same break cost calculation applies. Some fixed rate loans are 'portable' — meaning the loan can transfer to a new property — which avoids a break cost if you're buying another home simultaneously. Check your loan's portability feature with your lender.