Break Costs on Fixed Home Loans: Broker Checks

Break costs are charges a lender can apply when a fixed home loan is repaid or changed before its fixed term ends. They cover the lender’s estimated funding loss under the loan contract. Fixed rate break costs are separate from discharge fees and the costs of setting up a replacement loan.

Get the lender’s figure for the proposed transaction and payment date before comparing a refinance. An estimate used during the first discussion can change before settlement, even when the client’s fixed interest rate stays the same.

Identify the Event That Triggers a Cost

Identify exactly what the client wants to change before requesting a break-cost estimate. A full payout, an extra repayment and a switch within the same lender can have different consequences under the existing contract.

Proposed event	What the broker needs to establish
Full payout for a sale or refinance	Which fixed loan accounts will close, their balances and the intended payout date
Partial repayment	The extra amount, earlier extra payments and the unused allowance under that product’s contract
Product switch	Whether the existing fixed rate ends early, even though the lender and property stay the same
Security change	Whether the lender accepts a substitution of property security while retaining the loan, or requires repayment or another contract change

CommBank’s December 2024 Early Repayment Adjustment guide identifies full payout, excess extra repayments, switching and topping up as possible triggers. It also separates an administrative fee from the Early Repayment Adjustment (ERA). A zero ERA therefore doesn’t establish that the transaction has no fees.

Australia and New Zealand Banking Group (ANZ) allows extra repayments within a product-specific tolerance under its November 2024 fixed-rate repayment guide. The annual allowance is the lesser of $5,000 or 5% of the loan amount at the fixed period’s start. A fixed period shorter than a year has a proportionately reduced allowance.

That allowance isn’t a market-wide rule or permission to pay out the whole loan without a cost. For an ANZ loan that began its fixed period at $400,000, the annual tolerance is $5,000. If $3,000 has already been used, only $2,000 remains within that year’s allowance.

A security change also needs its own assessment. CommBank’s February 2026 substitution-of-security guide describes retaining the loan while replacing its property security. The new security must meet the bank’s requirements, and the bank can decline the request.

Don’t automatically treat every property sale as a full loan payout.

A Fictional Payout Enquiry

On 1 October 2026, a broker asks a fictional lender about refinancing a $400,000 fixed loan on 19 October 2026. The fixed term ends on 19 October 2027. The lender gives an indicative early-repayment adjustment of $4,500, a separate $350 discharge charge and an assumed $400 in combined registry charges.

The fictional lender states that the $4,500 is an estimate subject to recalculation on the actual payout date. It isn’t a binding settlement quote for 19 October. The discharge and registry amounts also need confirmation, but they don’t explain the lender’s funding loss.

The $400,000 principal is debt being repaid, not a refinance fee. Accrued interest belongs in the payout statement too, separate from the break cost.

Obtain a Dated Quote

Request the break-cost quote with the current balance, fixed-term end date and intended payment date for each fixed account. For a partial repayment, specify the amount to be paid and ask how prior extra repayments affect the available allowance.

Keep the request and the lender’s response together. The record needs the loan account, transaction type, date issued, proposed payment date, estimated cost and any quote expiry or recalculation condition. Ask for an itemised payout statement so you can separate principal and accrued interest from every fee.

ANZ’s November 2024 repayment guide explains that its calculation uses the amount repaid or switched, days left in the fixed period and market-rate movements. The bank sets the actual cost on the event date. This means an estimate obtained while discussing a refinance isn’t automatically the amount payable at settlement.

CommBank’s December 2024 ERA guide explains why the figure moves. The bank compares relevant wholesale swap rates with those at the start of the fixed term, then adjusts for present value and repayment type. Wholesale swap rates are the rates used in the bank’s funding arrangements, distinct from the client’s advertised home loan rate.

CommBank says its ERA quote is valid only on the day issued because swap rates change daily. A lower advertised replacement rate alone can’t establish the break cost. Use the lender’s calculation for the actual loan, not a generic balance-times-rate-difference formula.

Compare leaving the loan with retaining it over a stated period, such as the remaining 12 months of the fixed term. Keep the debt amount and repayment basis comparable. Include transaction fees, ongoing charges and any benefits the client gives up.

Compare the Whole Refinance Cost

The total refinance cost includes the break cost, discharge and registry charges, new-loan fees and any lost benefits. Keep a lender incentive separate so the client can see both the gross cost and the conditions attached to the payment.

Moneysmart’s switching guide, updated 29 July 2026, identifies break fees, discharge fees and application fees. It also warns that extending the loan term increases interest and that lenders mortgage insurance (LMI) can outweigh refinancing savings. LMI protects the lender against borrower default.

A Fictional 12-Month Comparison

Continue the fictional $400,000 enquiry with a 12-month comparison from 19 October 2026. Assume both loans permit interest-only repayments for that whole period and retain the same 20-year remaining loan term. The balance stays at $400,000, and the client pays transaction costs from savings.

Every figure below is assumed, including any applicable goods and services tax (GST). These are fictional amounts, not typical fees or current lender offers. For an actual file, replace each fee with the current lender quote and the applicable registry or settlement charge.

Cost or adjustment	Fictional amount	Treatment
Break cost	$4,500	Indicative figure, refresh for actual payout
Current lender discharge charge	$350	Separate from break cost
Discharge and new mortgage registration charges	$400	Combined assumed registry charges
New-loan application fee	$500	Replacement lender charge
New-loan valuation fee	$250	Replacement lender charge
Gross transaction fees	$6,000	Total of the five fee rows
Lost package benefit	$300	Assumed additional cost of replacing a benefit over 12 months
Gross cost including lost benefit	$6,300	Transaction fees plus lost benefit
Replacement lender incentive	Less $1,000	Assumed eligibility met and no repayment obligation within the comparison period
Net cost after incentive	$5,300	Gross cost including lost benefit, less incentive

Assume the existing fixed rate is 6.20% and the replacement rate stays at 5.70% throughout the 12 months. Interest is $24,800 on the existing loan and $22,800 on the replacement. The $2,000 interest saving is smaller than the $5,300 net switching cost.

Retaining the loan costs $24,800 over the period. Refinancing costs $28,100 after the incentive, including the lost benefit. Refinancing is therefore $3,300 more expensive in this fictional comparison despite the lower rate.

This example assumes neither loan has an ongoing fee and no new LMI is payable. A real principal-and-interest comparison needs each repayment schedule and the closing balance. If fees are added to the replacement loan, include the extra debt and its interest.

Check lost features as well as dollar costs. An offset account, redraw access or repayment flexibility can affect the client’s cash needs. Keep any incentive repayment condition in the comparison if the client intends to sell or refinance again within that period.

Record and Refresh the Quote

The broker’s fictional file note records the client’s intended refinance date of 19 October 2026 and no planned sale during the comparison period. It retains the 1 October estimate, its recalculation condition and both loan illustrations. The cost comparison uses those same dates and the same $400,000 balance.

If settlement moves to 26 October, request an updated break-cost estimate and payout statement for that date before committing funds. Recalculate the comparison with the revised amount and record the client’s decision against the refreshed figures. At settlement, reconcile the final lender payout with the amount actually paid.

Use the refinance requirements guide for the replacement loan’s eligibility and evidence. For the wider choice between staying, refinancing or changing the fixed-loan structure, use the fixed-rate mortgage exit guide. Keep the current dated quotation with the file that supports the decision.