Refinance a Fixed Rate Mortgage Early
Breaking a fixed-rate mortgage can make sense if the interest savings from a lower rate outweigh the lender's break costs and discharge fees.
Should I break my fixed-rate loan?
Fixed-rate home loans offer rate certainty, but exiting your term early usually incurs break costs. Lenders calculate these fees based on market interest rate movements since you settled, the wholesale cost of funds, and the remaining length of your fixed period.
Deciding to break your loan generally comes down to simple math. It makes sense if the total interest savings over the remaining fixed term exceed the break costs, discharge charges, and new loan establishment fees. If market rates have dropped since you locked in, break costs are often higher, whereas rising rate environments may reduce or eliminate break fees entirely.
Beyond pure cost comparisons, you must also meet current lender serviceability criteria and Loan-to-Value Ratio (LVR) requirements. Switching to a variable loan or a lower fixed rate can also grant access to features like offset accounts or redraw facilities, which can help reduce interest over time.
A Lonix broker can calculate your exact break costs, compare competitive rates across a wide panel of Australian lenders, and help structure your new loan to match your financial situation.
Related questions
- How are fixed rate break costs calculated?
- Lenders calculate break costs based on the difference between wholesale interest rates when you locked in and current market rates, multiplied by the loan balance and remaining fixed term.
- Can I roll break costs into my new home loan?
- Yes, many Australian lenders allow you to capitalise break costs into your new home loan, provided the total loan amount remains within their acceptable LVR limits.
- Do fixed rate home loans allow extra repayments?
- Most fixed loans place strict annual caps on extra repayments, often around $10,000 per year, before early exit or break fees apply.
- What other fees apply when switching home loans?
- Alongside potential break costs, you will usually pay a loan discharge fee to your existing lender, government registration costs, and potential upfront fees with your new lender.