A break fee is a charge borrowers face if they exit a fixed home loan early, and is usually a calculation based on the lender's wholesale funding rate at the time of the fix, and now.

The larger the difference between the wholesale funding rates, the larger the break fee is likely to be.

However, following multiple cash rate cuts down to a historic low of 0.25% in March, what was once a good rate only a year ago might now be mediocre, and the temptation to break out of a fixed loan is strong, according to the experts.

Buying a home or looking to refinance? The table below features home loans with some of the lowest interest rates on the market for owner occupiers.

Update resultsUpdate
LenderHome LoanInterest Rate Comparison Rate* Monthly Repayment Repayment type Rate Type Offset Redraw Ongoing Fees Upfront Fees LVR Lump Sum Repayment Additional Repayments Split Loan Option TagsFeaturesLinkCompare
6.14% p.a.
6.01% p.a.
$2,434
Principal & Interest
Fixed
$0
$0
90%
Free Redraw Facility
5.89% p.a.
6.13% p.a.
$2,370
Principal & Interest
Fixed
$0
$350
80%
6.69% p.a.
7.77% p.a.
$2,578
Principal & Interest
Fixed
$395
$0
80%
6.69% p.a.
7.19% p.a.
$2,578
Principal & Interest
Fixed
$0
$160
80%
Important Information and Comparison Rate Warning

Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to be made on variables as selected and input by the user. Some products will be marked as promoted, featured or sponsored and may appear prominently in the tables regardless of their attributes. All products will list the LVR with the product and rate which are clearly published on the product provider’s website. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. *The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Rates correct as of . View disclaimer.

Important Information and Comparison Rate Warning

Break fees 'up to $35,000'

Pure Finance managing director Brendan Dixon has seen a wide range of break fees with borrowers chasing a better deal.

“We’ve seen break fees ranging from a few thousand up to $35,000,” he said.

“The $35,000 example was someone who fixed for five years at 3.70%. At the time, it was a fantastic deal for the customers who were attracted to the low interest rate over a long period.

“The world changed since then, and now fixed rates are as low as 2.19%.

“When this fee was compared to the potential savings possible with the new product, it didn’t make sense to pay the break fee."

Due to the severity of the rate cuts, the cost of breaking the fixed term might not be as much as the potential savings by refinancing, but borrowers will have to do their homework, according to Mr Dixon.

"Conversely, some customers who are approaching the end of their fixed term might have a small fee payable which is counteracted by the savings of switching, and so it makes financial sense to pay the fee," he said.

"The fixed loan is a two-way agreement between you and the bank. They will give you the rate you desire but you have to stay in the product for the term.

"Right now we are helping a lot of clients to assess the benefit of fixing and often clients are seeing the benefit."

Is fixing a home loan a good idea?

Experts generally opine that fixing is a good idea for some, and a not so good idea for others.

Mr Dixon says borrowers will have to assess their own situation before fixing their rate.

“The main consideration with fixing a home loan is ensuring you avoid a future break fee, because this defeats the purpose of taking the lower rate,” he said.

“The other consideration is that with most fixed loans, not all though, you can’t make too many additional repayments and you also can’t have a linked offset.

Although, a more flexible arrangement might be to fix a portion of a home loan, according to Mr Dixon.

“If your goal is to knock your loan down in record time then a fixed loan may not be for you,” he said.

“With clients that have this goal, we might recommend a split loan which is where you fix a portion of your loan (say, 70%) and then leave the rest as variable.

“That way, you can make extra repayments on the variable loan (and have an offset if you like) whilst also making the most of low fixed rates for the bulk of your debt.”

Co-founder of Atelier Wealth, Aaron Christie-David, also pointed out some of the restrictions of fixed rates. 

“Yes, rates are low, however most borrowers are unaware that a fixed rate loan can be restrictive, for example, max $10,000 in additional repayments per annum, no offset account linked, [and] break fees,” he said.

With fixed rates now commonly lower than variable ones, Samuel Philipos from the Benevolence Financial Group says fixing could provide certainty and a way to reduce expenses.

“A silver lining during these troubled times is saving borrowers thousands of dollars on their home loan,” he said.

“During the global pandemic, it would be wise to look at reducing expenses particularly with the largest household expense: your mortgage.”

Mr Dixon said fixing could be a good idea, provided it suits borrowers' longer term goals.

"There is a big gap between fixed and variable at the moment and this is because of the two rate cuts in March when the banks passed on one rate cut to all variable and fixed loans, but the second cut was only passed on to fixed loans, as well as an increase to term deposit rates," he said.

"This means that fixed loans got a double reduction in March and this triggered mass competition between the banks to secure clients.

"Banks are nervous and need customers right now."

Buying a home or looking to refinance? The table below features home loans with some of the lowest variable interest rates on the market for owner occupiers.

Update resultsUpdate
LenderHome LoanInterest Rate Comparison Rate* Monthly Repayment Repayment type Rate Type Offset Redraw Ongoing Fees Upfront Fees LVR Lump Sum Repayment Additional Repayments Split Loan Option TagsFeaturesLinkCompare
6.04% p.a.
6.06% p.a.
$2,408
Principal & Interest
Variable
$0
$530
90%
Featured 4.6 Star Customer Ratings
  • No monthly or ongoing fees
  • Unlimited free redraw
  • No application fee
5.99% p.a.
5.90% p.a.
$2,396
Principal & Interest
Variable
$0
$0
80%
Featured Apply In Minutes
  • No application or ongoing fees. Annual rate discount
  • Unlimited redraws & additional repayments. LVR <80%
  • A low-rate variable home loan from a 100% online lender. Backed by the Commonwealth Bank.
6.09% p.a.
6.11% p.a.
$2,421
Principal & Interest
Variable
$0
$250
60%
Featured Unlimited Redraws
  • No annual fees - None!
  • Get fast pre-approval
  • Unlimited additional repayments free of charge
  • Redraw freely - Access your additional payments when you need them
  • Home loan specialists available today
Important Information and Comparison Rate Warning

Base criteria of: a $400,000 loan amount, variable, fixed, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. However, the ‘Compare Home Loans’ table allows for calculations to be made on variables as selected and input by the user. Some products will be marked as promoted, featured or sponsored and may appear prominently in the tables regardless of their attributes. All products will list the LVR with the product and rate which are clearly published on the product provider’s website. Monthly repayments, once the base criteria are altered by the user, will be based on the selected products’ advertised rates and determined by the loan amount, repayment type, loan term and LVR as input by the user/you. *The Comparison rate is based on a $150,000 loan over 25 years. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate. Rates correct as of . View disclaimer.

Important Information and Comparison Rate Warning





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