Fixed rate home loans look straightforward until you try to leave one early or compare two products side by side.
The interest rate tells you what you'll pay each month, but it doesn't tell you about break costs if rates fall, application fees that get added to your balance, or whether the comparison rate includes features you'll never use. Those costs matter because they change the total price of borrowing, sometimes by several thousand dollars over the life of the loan.
What You Pay Upfront on a Fixed Rate Loan
Most lenders charge an application fee, a valuation fee, and a settlement fee when you take out a fixed rate home loan. The application fee typically sits between $300 and $600 and covers the lender's cost of processing your documents and running credit checks. Valuation fees depend on the property type and location but generally range from $200 to $400. Settlement fees are usually $150 to $300 and cover the lender's legal costs at settlement.
Consider a buyer in Newcastle securing a fixed rate loan for a property in Merewether. The lender charges a $495 application fee, a $250 valuation for the established home, and a $200 settlement fee. That's $945 in upfront costs before the loan is drawn down. Some lenders allow you to capitalise these fees by adding them to the loan amount, which means you'll pay interest on them over the fixed period. Capitalising $945 at a fixed rate over three years adds around $70 to $90 in additional interest, depending on the rate.
Comparison Rates and What They Actually Show
The comparison rate is a single percentage figure that combines the advertised interest rate with most fees and charges, calculated over a loan amount of $150,000 and a term of 25 years. It's designed to help you compare loans that have different fee structures.
A lender might advertise a fixed rate of 5.99% with a comparison rate of 6.15%. The difference between those two figures reflects the impact of upfront and ongoing fees. A larger gap usually means higher fees. However, the comparison rate doesn't include break costs, redraw fees on some products, or costs that apply only in specific circumstances like switching from interest-only to principal and interest partway through the fixed term.
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If you're borrowing more or less than $150,000, or your loan term is shorter or longer than 25 years, the comparison rate won't reflect your actual cost of borrowing. It's a useful starting point for comparing similar loans, but you still need to look at the fee schedule and calculate the total cost based on your own loan amount and term.
Break Costs on Fixed Rate Home Loans
Break costs apply when you repay a fixed rate loan in full before the end of the fixed period. The lender calculates the cost based on the difference between the interest rate you're locked into and the rate the lender can now earn by lending that money again, plus an administration fee.
In a scenario where rates have fallen since you fixed, the break cost can be significant. A borrower fixed $500,000 at 6.2% for three years. Eighteen months later, the same lender's three-year fixed rate has dropped to 5.4%. The borrower wants to sell and repay the loan. The lender calculates the break cost on the remaining 18 months of the fixed term, based on the 0.8% difference in rates. In this case, the break cost comes to approximately $6,000, plus a $300 administration fee. The exact formula varies by lender, but most use a present value calculation that discounts the interest rate differential over the remaining fixed period.
Break costs don't apply if rates have risen since you fixed your loan. You also won't pay a break cost if you're making extra repayments within the allowable limit, which is typically $10,000 to $30,000 per year depending on the lender. Most fixed rate loans allow you to switch to a variable rate at the end of the fixed period without any cost.
Ongoing Account Fees During the Fixed Period
Some lenders charge a monthly account-keeping fee during the fixed period, typically between $10 and $15 per month. Over a three-year fixed term, that adds up to $360 to $540. Other lenders don't charge an ongoing fee but recover their costs through a higher interest rate or higher upfront fees.
A package fee is another ongoing cost that appears on some fixed rate products. The lender charges an annual fee, often $300 to $400, in exchange for a discounted interest rate and fee waivers on other products like credit cards or transaction accounts. Whether a package fee works in your favour depends on how much the rate discount saves you. On a loan amount of $600,000, a 0.15% rate discount saves around $900 per year in interest. If the package fee is $350, you're still ahead by $550. On a smaller loan amount, the numbers might not work out the same way.
Costs When Porting or Switching Loans
Porting a fixed rate loan means transferring it to a new property when you sell and buy within a short timeframe. Not all lenders allow this, and those that do typically charge a fee of $300 to $500. You'll also pay for a new valuation on the property you're buying. Porting avoids break costs, but you need to settle the purchase before or within a few weeks of settling the sale, and the new loan amount usually can't exceed the existing balance by more than a small percentage.
Switching from a fixed rate to a variable rate before the fixed period ends will trigger break costs, calculated the same way as if you were repaying the loan in full. Switching from one fixed rate to another fixed rate with the same lender might be treated as a partial discharge and a new application, which means break costs on the amount you're moving plus a new set of application and valuation fees. The cost of switching during a fixed period is usually high enough that most borrowers wait until the fixed term ends.
Discharge and Settlement Costs at the End of the Loan
When you repay a fixed rate loan in full after the fixed period has ended, the lender charges a discharge fee to cover the administrative and legal costs of removing the mortgage from the title. Discharge fees are typically $300 to $500. You'll also pay your solicitor or conveyancer to handle the settlement, which usually costs another $300 to $800 depending on the complexity of the transaction.
If you're refinancing to another lender, you'll pay discharge fees to your existing lender and application, valuation, and settlement fees to the new lender. That's often $1,500 to $2,500 in total fees, which is why refinancing only makes sense if the interest rate saving or features on the new loan justify the upfront cost.
When you're comparing fixed rate loans or deciding whether to fix part of your loan, line up the actual costs based on your loan amount and the length of time you plan to hold the property. Call one of our team or book an appointment at a time that works for you, and we'll run the numbers on the fixed rate products that suit your situation and show you the total cost over the period you're likely to keep the loan.
Frequently Asked Questions
What are break costs on a fixed rate home loan?
Break costs apply when you repay a fixed rate loan in full before the end of the fixed period. The lender calculates the cost based on the difference between your fixed rate and the current rate the lender can earn, plus an administration fee. If rates have fallen since you fixed, the break cost can be several thousand dollars.
Does the comparison rate include all fees on a fixed rate loan?
The comparison rate includes most upfront and ongoing fees but doesn't include break costs, some redraw fees, or costs that apply only in specific circumstances. It's calculated on a loan amount of $150,000 over 25 years, so it won't reflect your actual cost if your loan size or term is different.
Can I avoid break costs if I sell my home during a fixed period?
You can avoid break costs by porting your fixed rate loan to a new property if your lender allows it. This usually requires settling the purchase before or shortly after settling the sale, and you'll pay a porting fee of $300 to $500 plus valuation costs. If you can't port the loan, break costs will apply.
What upfront fees do lenders charge on fixed rate home loans?
Lenders typically charge an application fee of $300 to $600, a valuation fee of $200 to $400, and a settlement fee of $150 to $300. Some lenders let you capitalise these fees by adding them to the loan amount, which means you'll pay interest on them over the fixed period.
Do fixed rate loans have ongoing monthly fees?
Some lenders charge a monthly account-keeping fee of $10 to $15, which adds up to $360 to $540 over a three-year fixed term. Other lenders don't charge ongoing fees but may have higher upfront costs or a slightly higher interest rate instead.
