How Break Fees Are Calculated
A break fee (also called a prepayment cost) is what your bank charges if you exit a fixed-rate mortgage before the term ends. It's based on the difference between the wholesale interest rate when you fixed your loan and the current wholesale rate for the time remaining, multiplied by your outstanding balance.
For example: a $500,000 loan fixed at 5.00%, broken with 3 years remaining when wholesale rates have fallen to 4.00%, works out to roughly $500,000 × (5.00% − 4.00%) × 3 = $15,000. If rates have risen instead of fallen, the fee is often minimal or zero.
Break fees are recalculated daily based on current wholesale rates — your bank can only give you an accurate quote on the day you ask.
Rates Have Fallen
Rates Have Risen
Reducing the Impact of a Break Fee
A few practical ways to soften the cost.
Get a quote before deciding
Ask your bank for an exact break fee figure so you can compare it against the savings from switching.
Time it near term end
Break fees shrink the closer you are to your fixed term's natural expiry.
Weigh cashback against the fee
A new lender's cashback offer can sometimes offset most or all of the break cost.
Quick Summary
- Break fees are based on wholesale rate movements and time remaining on your fixed term.
- Rates fallen since you fixed means a bigger fee; rates risen usually means little or nothing.
- Always get a quote before deciding whether breaking early is worth it.