A borrower on a fixed rate who refinances two years into a four-year term can be handed a break cost invoice for several thousand dollars, on top of a separate discharge fee that has nothing to do with the fixed rate at all. Confusing the two, or not knowing about either, is one of the fastest ways a refinance stops making financial sense.
What a break cost actually is
A break cost, sometimes called an early repayment cost, only applies to fixed rate loans. When a lender sets a fixed rate, it typically arranges its own funding at a matching fixed cost for that period. If the borrower exits early and market rates have since fallen, the lender is left funding a loan at a rate the market no longer supports, and the break cost recovers that gap.
The amount varies a lot depending on how far rates have moved and how much time is left on the fixed term. A $500,000 loan with two years left on a fixed rate, where wholesale rates have fallen by 1 percentage point since the loan was fixed, could attract a break cost anywhere from $2,000 to $8,000 or more. The same loan with three months left and little rate movement might attract a break cost of only a few hundred dollars.
Do break costs apply to variable rate loans?
No. Variable rate loans don’t carry a break cost because there’s no fixed funding arrangement for the lender to unwind. This is one of the trade-offs of a variable rate: less rate certainty, but no early exit penalty if a better deal comes along through refinancing.
What a discharge fee covers, and why it’s separate
A discharge fee is an administrative charge for the paperwork involved in closing out a loan and removing the lender’s mortgage from the property title. It applies to fixed and variable loans alike, and it’s charged regardless of whether rates have moved at all.
Most lenders charge somewhere between $150 and $400 for a standard discharge, though this varies by lender and state, since some state land title registries also charge their own separate lodgement fee on top, often in the $150 to $350 range. That land title fee applies no matter which lender is involved, because it’s a government charge, not a bank one.
Most discharges now happen electronically through the PEXA platform rather than paper lodgement, which can add a small additional fee of around $100 to $180, usually itemised separately in the settlement figures. None of these amounts are large individually, but they still need to be accounted for when comparing the total cost of leaving a loan.
How these costs actually affect the refinancing decision
The mistake many borrowers make is looking only at the new rate on offer and ignoring what it costs to get there. A refinance that saves $100 a month but costs $3,500 in break fees and $500 in discharge and lodgement costs needs roughly three years just to break even, before any cashback offer from the new lender is factored in.
This doesn’t mean the refinance is a bad idea. It means the maths needs to be done properly, comparing the total exit cost against the total savings over the period the borrower actually plans to keep the new loan. Someone planning to stay in the property for another 10 years has a very different calculation to someone who might sell in 18 months.
The same logic applies in reverse when a fixed term is close to ending. A borrower with only two months left on a fixed rate might find the break cost is negligible, making it worth locking in a new rate slightly ahead of the expiry date rather than waiting and risking a rate rise in the meantime. Whether that timing makes sense depends entirely on the specific quote, not a general rule.
How to find out what you’d actually pay
Break costs aren’t published as a simple table, because they depend on live wholesale rate movements at the time of calculation. The only reliable way to get a figure is to ask the current lender directly for a break cost quote, which most lenders will provide within a few business days of a request.
Discharge fees, by contrast, are usually published in the loan’s fee schedule or the original loan contract, so those figures can be confirmed without contacting the lender at all. Getting both numbers before applying for a new loan means there are no surprises once the refinance is underway, and where the sums involved are significant, it’s worth discussing the timing with a financial adviser as well as a broker.
Key Takeaways
- Break costs only apply to fixed rate loans, and only when a lender’s funding cost no longer matches current market rates.
- Variable rate loans don’t carry a break cost, since there’s no fixed funding arrangement to unwind.
- A discharge fee is a separate administrative charge, typically $150 to $400, that applies to any loan being closed out.
- State land title registries often charge their own lodgement fee on top of the lender’s discharge fee.
- The only reliable way to get an exact break cost figure is to request a quote directly from the current lender.