What is a break fee?

When you fix, the bank funds your loan at the wholesale rate of the day. If you repay early, refinance, or move to a new rate before the fixed term ends, and wholesale rates have dropped, the bank loses interest it expected to earn. The break fee recovers that loss. The Credit Contracts and Consumer Finance Act lets the lender charge a reasonable estimate of its loss, and the Commerce Commission enforces that rule.

There is often no fee if rates have risen since you fixed. Most banks also let you repay a small extra amount each year without a fee, or increase your regular repayments within a limit. Ask for a written quote before you break a fixed term.