Ending your fixed rate home loan period early – things to consider

When you take out a home loan, we typically borrow money from other banks and businesses in the wholesale money market to fund your loan. And when you lock in your interest rate with a fixed rate home loan, we also lock in our funding costs at a fixed rate to manage the risk of interest rate changes.

If you break your fixed rate period early, we’re still obligated to repay those in the wholesale money market for the rest of the fixed period. A fixed rate break cost will apply if we’ve made a loss and need to cover it. We don’t profit from charging the fixed rate break cost.

You can find out more about fixed rate break costs in your home loan contract and the home loan terms and conditions provided with your loan.

You can also get an estimate of fixed rate break costs by getting in touch with one of our Home Lending Specialists.

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It depends on a number of factors, including how long you’ve got to go on your fixed rate period and your current loan amount. We also take into account what the rate was in the wholesale money market at the time we borrowed to fund your loan (the ‘funding rate’) and what the rate is when the fixed rate period is terminated early (the ‘investing rate’). The fixed rate break cost covers the difference between these rates.

These wholesale money market interest rates can change substantially from day to day, so any fixed rate break cost quotes you’re given are only valid for that day and subject to change.

Let’s say the rate in the wholesale money market when you took out a 5-year fixed rate loan was 5.50% p.a., and now it’s 3.00% p.a.. Now let's say you decide to break your fixed rate loan with 2 years to go on the fixed rate period, and your current loan principal is $300,000.

To estimate the break cost, the following formula is used:

(Rate when the fixed rate loan was taken out – rate when the fixed rate period ended early) x remaining fixed period of loan x current loan principal = fixed rate break cost.

For the example above, the calculation would be:

(5.50%p.a. – 3.00% p.a.) x 2 x $300,000 = $15,000

This means your estimated fixed rate break cost would be $15,000.

Keep in mind that the exact calculation of the break cost amount also includes additional factors, like the value and timing of the remaining cash flows based on current market interest rates determined by us.

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This is a set fee that’s charged to cover the costs associated with processing a full prepayment to your home loan. This fee is outlined in your home loan contract.

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You may need to pay these costs if, during your fixed rate period, you:

1. Switch or split your loan

This means switching from a fixed to a variable rate home loan, or even to another fixed rate home loan. It also includes splitting your fixed rate loan between fixed and variable.

2. Increase your loan (also known as a top up)

You might want extra funds and decide to increase the limit of your fixed rate loan.

3. Pay off some of your loan early

For example, if you ask us to reduce the limit of your fixed rate loan, or if you make extra repayments on your fixed rate loan above the allowed yearly $10,000 maximum. Note that if you do make extra repayments above the maximum, we may refund this money to you – refer to your home loan terms and conditions for more info.

4. Pay off your whole loan early

For instance, if you sell your property and use the sale proceeds to repay the home loan in full during the fixed rate period.

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If you want to pay off your fixed rate loan faster

You can make extra repayments of up to $10,000 a year without needing to pay a fixed rate break cost.

If you need to access extra funds by increasing your home loan

You might want to consider applying for a new, separate home loan instead. Our lending criteria will apply.

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