Break costs are a penalty incurred for early repayment of a fixed rate home. They are imposed by the lender as a way to recover interest they may lose if you break a fixed rate contract to move to a cheaper loan.

The size of your break costs will be determined by the term you fix for (number of years), the rate you’ve fixed at and the margin between that fixed rate and prevailing interest rates at the time you break the contract.

Break costs can also apply on some fixed rate home loans even if you simply want to sell your current home and upgrade. Read the fine print with all your loan contracts as not all fixed loans have a portability clause which says you can continue your home loan if you change properties.

Depending on lender and term and conditions of loan contract, break costs can be extremely expensive.