What is a Break Cost Fee?
A Break Cost Fee is the fee incurred if you repay all or part of your loan early, or make changes to your loan type, interest rate or type of repayment during a fixed rate period.
Why are they charged?
When you enter into a fixed rate term, the total cost of the loan during that period is broken up into regular, equal repayments. The fixed nature of these equal repayments allows us to access money for you at the best available rates, making the fixed term of your loan possible.
When these fixed repayments are changed or adjusted in any way, the total cost of the loan for that period is also changed, and it means the conditions under which we’re able to access the best rates for you are no longer the same as originally agreed.
The Break Cost Fee helps us make sure that the total cost of your loan during the fixed rate period remains as close to the contracted fixed term amount as possible.
When do we charge them?
A Break Cost Fee applies when you repay all or part of your loan early, or when you make any other adjustments to your loan (like loan type, repayment type or interest rate) during the fixed rate period.
How much is the fee?
We have a very comprehensive formula (which can be found in your Loan Contract) for calculating the Break Cost Fee, which takes into account a number of things. These include:
- The total outstanding amount on your loan (before any early repayments are made)
- The dollar amount of the scheduled repayments during your fixed term
- The best available interest rate at the beginning of your loan term
- The best available interest rate at the time of any early repayments or changes made to your loan
- The difference between these rates, if any
- The number of months left in your fixed rate term
The Break Cost Fee depends on the interest rate available to us at the time you make early repayments or changes to your loan. If it’s less than the interest rate available to us at the start of your loan term, the break cost fee will make up the discrepancy between the rates.
Can you make extra repayments without incurring a break cost fee?
You can only make extra repayments towards your loan during the fixed rate period up to the value of $10,000 per year. Any early repayments that go over this amount will incur a Break Cost Fee.
Still have questions?
We’ll gladly answer them. Get in touch with our friendly Customer Care Team on 138 001.
