Lenders consider the following to be “breaking” a fixed home loan:

• Switching to a new or different product
• Excessive home loan repayments
• Repaying the loan in full before the term of the fixed rate period
• Loans in default

When you break a fixed home loan, generally you will have to pay a Break Fee and a discharge Fee.

Early repayment fees are calculated using the Bank Bill Swap Rate (BBSR). You can find the current BBSR on the homepage of the ASX.

The BBSR is the interest rate on wholesale fixed rate borrowing that the banks are charged by their wholesale lenders.

 The rates change very frequently (more than daily). The BBSR is the most transparent indicator of the cost of funding for your loan.

The bank will compare the BBSR when you took out your loan and compare it with the BBSR at the time you want to exit. BBSR’s are based on specific time periods, so an early repayment fee will be calculated against a BBSR of the same time period, that you want to exit out of your loan.

So for example, if you have 2 years left on your fixed home loan, your original BBSR is calculated against the 2 year BBSR on the day you exit.

Sometimes, the bank will not charge you a break payment if all the interest rates currently in the market, are more expensive than your current loan, as they will make more money out of your exit.

The bank can take advantage of the original wholesale funding rates, to lend money to new borrowers at a higher rate.

Do you want a better rate than you are currently on?

 You are going to be pleasantly surprised.

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