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Explainer: What is a break cost?

By Maria Gil ·
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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

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Last updated 27 July 2024 Important disclosures and comparison rate warning*
  • Basic Home Loan

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

    interest rate
    comparison rate
    Initial monthly repayment
    6.25% p.a.
    fixed 3 years
    6.20% 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 $10,000,000.

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  • Optimum Fixed Rate Home Loan

    Owner Occupier, Principal & Interest

    interest rate
    comparison rate
    Initial monthly repayment
    5.69% p.a.
    fixed 3 years
    6.34% p.a.

    Lock in a competitive interest rate and enjoy peace of mind for the fixed period. Available for owner occupied new and refinanced home loans with at least 20% deposit. Split option available as well as offset and redraw. Noapplication, ongoing or banking fees. Third Party fees may be applicable - payable within loan repayments. Extra repayments up to $20K per annum permitted. Apply online, 100% member owned credit union.

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  • Basic Home Loan

    Fixed, Owner Occupier, Principal & Interest, LVR 70-80%

    interest rate
    comparison rate
    Initial monthly repayment
    6.35% p.a.
    fixed 3 years
    6.26% p.a.

    Get a flexible loan structure with up to six loan accounts with different rate types. Make free extra repayments. Enjoy free redraw facility. No upfront or ongoing fees. Option to earn Qantas points.

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  • Featured Product
    Fixed Rate Loan

    Owner Occupier, Principal & Interest, LVR <80%

    interest rate
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    Initial monthly repayment
    6.09% p.a.
    fixed 3 years
    6.15% p.a.

    Additional repayments of up to $10K per fixed year. Interest rate discounts available. Waiver of $499 application fee when combined with an Orange Advantage Home Loan.

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  • Fixed Rate

    Owner Occupier, Principal & Interest, <80% LVR

    interest rate
    comparison rate
    Initial monthly repayment
    6.54% p.a.
    fixed 2 years
    7.10% p.a.

    Enjoy up to $3000 cashback for eligible first home buyers and $2000 cashback for refinancers on eligible home loans with the ANZ Fixed Rate Home Loan. Get the security of repayment certainty with a competitive locked in rate. No ongoing fees to pay. Offset account on 1-year fixed loans ($10/month fee applies). Interest-only payments allowed.

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Maria Gil
Maria Gil
Money writer

Maria Gil writes across all of our personal finance areas here at Mozo. Her goal is to help you think smarter about money and have more in your pocket. Maria earned a journalism degree in Florida in the United States, where she has contributed to major news outlets such as The Miami Herald. She also completed a masters of digital communications at the University of Sydney. When Maria isn’t busy with all things finance, you can find her tucked away reading fantasy books. She is also ASIC RG146 (Tier 2) certified for general advice.

* 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. You can change the loan amount and term in the input boxes at the top of this table. 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.

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