With interest rates now really starting to drop, a lot of people are looking at the new interest rates and potential savings and are asking: “Should I break my fixed loan early to get a lower interest rate?”
And honestly—it depends.
Let’s break it down.
How does it actually work?
A break fee is the difference to a bank between what you would have paid in interest for the rest of your fixed term, compared to what they could lend that money for to someone else for the same time period.
Read: How much are they losing out if you stop paying a more expensive rate?
Banks charge break fees because essentially you are breaking the contract term you originally agreed to. If that rate is more expensive than the one you'd get today, they would be in a worse position, hence the fee.
Break fee costs are a bit of a dark art in the lending world. The only way to calculate one is actually to ask your bank (or we can do it for you).
They are charged on the date of breaking (so can change from day to day) and once you know the fee, you can use our nifty little calculator to work out whether it's better to break or not.
What happens when you break a fixed loan?
Say you’ve got one year left on your fixed loan at 6.99%, and your bank is now offering 5.19%.
That’s a big difference—but breaking your loan comes with a cost: a break fee.
We do the maths with you. We’ll:
Look at how much that break fee would be
Compare it to how much you’d save with the lower interest rate
If it works out in your favour—awesome! You’ll potentially save money by breaking.
If not? It might be better to stick it out and let your current loan term finish.
But wait - there's a bit more to it
There are a couple of other things you really need to think about:
1. You Have to Pay the Break Fee Upfront
This isn’t something the bank will cover for you. If the break fee is $3,000 (or $2,000, or even $1,500), you’ll need to have that money ready to pay upfront. That can be a deal-breaker for some people.
2. Will Breaking Help You Hit a Bigger Goal?
This is a big one. Sometimes breaking your loan might not save you a huge amount in repayments—but it could help you:
Consolidate other lending
Get prepped to buy another property
Restructure your finances to meet a long-term goal
In these situations, the break fee might be worth it as part of your overall financial plan.
Let's work it out together
It’s never been more important to get advice before making a move like this.
Every situation is different, and we’ll help you weigh up the costs, benefits, and what’s best for you and your goals.
You can book a time directly with one of us below 👇