What you need to know about home loan break fees

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When you first take out a home loan, chances are that you’re not thinking about switching loans or paying off your loan early or even refinancing. But it’s a good idea to think ahead and be aware of any costs that might apply if you find yourself in a situation where you’re ending your loan early. 

It could be that you want to sell your home, to renovate, to refinance, to take advantage of a lower interest rate, or even to consolidate other debts. Whatever the reason you’re paying off your home loan early, it’s always worth being aware of the home loan break fees which will vary from lender to lender.

We help outline types of fees to look out for, and when these fees may apply:

What are home loan break fees?

Break fees are usually charged when you end your fixed rate loan before  the end of the agreed period. These  fees can be extremely high, so a word to the wise - when you’re considering refinancing your fixed rate loan or repaying it in full ahead of fixed rate term, look out for these break fees. 

When do break costs apply?

Usually you’re required to pay the break fee at the time you end your loan. These fees may include the difference in interest payments between the rate you fixed your loan at and the current interest rate. So if interest rates have fallen a lot since you took out your  loan, your break fee could be very high. The calculation of break costs can be quite complex so it’s a good idea to ask your loan provider for a quote  before you decide to end your fixed rate loan.

What are the different types of break costs?

The names used for break costs vary between lenders, but they all refer to a fee charged when paying out you loan early. Here is some common terminology:

Early exit fees

Early exit fees

Also called ‘early termination’ or ‘deferred administration’ fees (DAF), early exit fees are charged if you pay out your loan in full within a certain period (for example two or five years).  Here at Pepper Money we don’t charge an early exit fee, however other fees and charges may apply when you finish your loan, so make sure you chat to one of our Lending Specialists about how much you’ll need to pay.
Discharge fees

Discharge fees

A discharge fee is the amount you’ll need to pay when a lender agrees to end your loan agreement. We include the amount upfront in your loan agreement so you’ll know the exact figure before signing on the dotted line, but different lenders may have different policies. You may also be charged additional legal costs and out-of-pocket expenses for preparation of the relevant documentation and the discharge of your mortgage. If you’d like to know more about our discharge fees, then you can chat to one of our Lending Specialists on 13 73 77 .
Refinancing fees

Refinancing fees

If you’re thinking of refinancing your home loan there could be some fees involved. Some may relate to setting up the new loan, while others may be payable upon discharging your current home loan - such as the  early exit fee (for loans signed up before 1 July 2011), discharge fees or a fixed rate loan break fee.

There are many different fees that can be charged as part of a home loan refinance, and break fees are just one category. That’s why it’s important to look at all the possible costs carefully when you’re considering a home loan. 

You can get all the facts about fees at MoneySmart or by contacting your lender. Speak to a Pepper Money Lending Specialist on 137 377 to discuss fees and charges for Pepper Money's home loan products. 

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