08 Feb 2023

Why Can’t I Have My Fixed Home Loan Break Costs Waived?

home loan interest rates

Break costs can be described as fees that are charged by your home loan provider for making extra mortgage repayments on a fixed-rate mortgage, breaking your loan agreement before the term has ended, or refinancing. These fees are normally lump sum charges that are added to your mortgage agreement or an increase on your existing interest rate.

Banks and home loan providers generally are unwilling to waive break costs for various reasons. Fixed-rate home loans require your provider to borrow money from various institutions, including wholesale money markets. If a provider waives break costs, they are losing money because the transaction between provider and the institution they borrowed from is subjected to the Bank Bill Swap Rate and determined when your fixed interest rate is determined. You are unable to have your fixed home loan break costs waived because your provider is prohibited from paying back the borrowed funds early, which is why you are required to pay their BSBR when you repay a home loan before the term has ended.

When are Break Fees Charged?

You may be subjected to paying break fees for various reasons, including the following examples:

  • When you switch to an interest-only loan, variable rate loan, or refinance
  • When you repay your entire loan before the fixed-term has ended
  • When you make an additional mortgage repayment during the year
  • When you sell your home within the fixed-term
  • When you are in default

Refinancing your existing home loan can be beneficial even if you are charged break costs. However, before refinancing it is recommended to determine how much money you will save by switching to a new provider and verify that the money being saved is a higher amount than the money you have lost during the refinancing process.

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