Explainer: What is a break cost?

By Maria Gil ·
Fact Checked
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couple calculating how much the break cost will cost them

A break cost is a fee a lender charges when you repay your loan early or switch to a different type of loan during a fixed rate period.

This fee can be applied to home loans, personal loans, and car loans.

When do break costs apply?

Whenever you take out a fixed rate loan, lenders expect to earn money through the interest you pay during the specific time period. But if you break from that fixed rate period early, then the lender will lose money. Since that is less than ideal, lenders safeguard themselves against potential losses by including break cost fees.

If you are on a variable interest rate you usually won’t have to worry about this fee. However, depending on your lender you might have to pay an exit (or discharge) fee when you finish paying your loan or switch to a different lender.

How to avoid break costs?

Depending on your lender, you will have to meet certain requirements to avoid break costs. Some providers may have a prepayment threshold, which allows you to pay a certain amount before the free incurs. 

Others might have a time period that doesn’t penalise you for paying off your loan in full early. This time period could be 6 to 12 months before the contract ends. 

When taking out a home loan it is important to ask your provider about their break cost rules. That way you won’t be suddenly confronted with a massive fee if you find yourself in a situation in which you are able to pay off your loan early.

If you are looking for a fixed rate home loan, check out Mozo’s comparison table to see which loan may be the best for you. If you are thinking about buying a house soon check out our Home Loan Guides.

Home loan comparisons on Mozo - last updated 21 May 2022

Search promoted home loans below or do a full Mozo database search. Advertiser disclosure
  • Own Home Loan

    Fixed, Owner Occupier, Principal & Interest, LVR <60%

    interest rate
    comparison rate
    Initial monthly repayment
    2.99% p.a.
    fixed 1 year
    2.50% p.a.

    Competitive variable rates. Free extra repayments and redraws. No Lender’s Mortgage Insurance. Multiple offset accounts available. Fast digital application. 40% deposit required.

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    Details
  • Basic Home Loan

    Fixed, Owner Occupier, Principal & Interest, LVR<70%

    interest rate
    comparison rate
    Initial monthly repayment
    3.59% p.a.
    fixed 1 year
    2.54% p.a.

    No upfront or ongoing fees. Free extra repayments and redraw facility. Option to earn Qantas points. Min 30% deposit required. Borrow up to $750,000.

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    Details
  • Fixed Rate Home Loan

    Home Loan Package, Owner Occupier, Principal & Interest, LVR <80%

    interest rate
    comparison rate
    Initial monthly repayment
    4.07% p.a.
    fixed 1 year
    3.05% p.a.

    Ability to split your home loan between Fixed and Variable. Dedicated Relationship Manager. Min 20% deposit. Receive $3,288 cashback when you refinance an existing home loan of $250,000. Must apply by 31 May 2022 and settle by 31 July 2022.

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    Details
  • Mozo Expert Choice Badge
    Discount Great Rate Home Loan

    LVR<90%, over $150k

    interest rate
    comparison rate
    Initial monthly repayment
    3.09% p.a.
    fixed 1 year
    2.28% p.a.

    Get one of the lowest rates on the market with this fixed rate mortgage. Available with just a 10% deposit. Guarantor option available. NSW, QLD and ACT residents only. Mozo Experts Choice Awards - Home Lender Bank of the Year 2022.

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    Details
  • Mozo Expert Choice Badge
    Fixed Rate Home Loan

    Owner Occupier, Principal & Interest, LVR<80%

    interest rate
    comparison rate
    Initial monthly repayment
    2.99% p.a.
    fixed 1 year
    2.76% p.a.

    Competitive fixed rates across 1 to 5 year terms. No application fee or annual fee. Free extra repayments (up to $10,000 per year). Winner of Australia's Best Large Mutual Bank 2021.

    Details

* WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

** Initial monthly repayment figures are estimates only, based on the advertised rate, loan amount and term entered. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.

^See information about the Mozo Experts Choice Home Loan Awards

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