Do Fixed Rate Loans Have Higher Fees and Costs?

Fixed rate loans come with the same ongoing costs as variable rate loans, but they carry different risks around exit fees and break costs.

When you lock in a fixed rate, the lender is committing to that rate for the agreed period regardless of what happens in the wholesale funding market. If you need to exit early, refinance, or pay down more than the allowed extra repayments, the lender may charge break costs to recover their loss. This is the single biggest cost difference between fixed and variable products, and it catches out borrowers who don't plan for change.

Application and Settlement Fees on Fixed Rate Loans

Most lenders charge the same application and settlement fees whether you choose a fixed rate, variable rate, or split loan structure. Expect to pay between $300 and $900 in upfront fees depending on the lender and loan product. Some lenders waive the application fee entirely as part of a package or promotion, but this applies equally across loan types.

Lenders Mortgage Insurance is calculated the same way for fixed and variable loans. If your deposit is less than 20%, LMI applies based on your loan amount and LVR, not your interest rate type. The premium can be added to the loan balance or paid upfront at settlement. In Western Australia, stamp duty on the LMI premium was abolished in July 2019, so this is not a cost you need to account for.

Valuation fees, discharge fees, and legal costs are also identical across loan types. The structure of your interest rate does not change how much the lender charges to value the property or prepare the mortgage documents.

Break Costs on Fixed Rate Loans

Break costs apply when you exit a fixed rate loan before the end of the fixed period. The lender calculates the cost based on the difference between your fixed rate and the current wholesale rate the lender can earn by reinvesting the funds. If rates have fallen since you fixed, the break cost can be substantial. If rates have risen, the break cost may be zero.

Consider a borrower who fixed a loan of $500,000 at 5.8% for three years in early 2025. Eighteen months into the fixed period, they decide to refinance to access equity for a second property. By mid-2026, fixed rates for the remaining term have dropped to 4.9%. The lender's break cost calculation reflects the lost interest income over the remaining 18 months. In this scenario, the break cost could easily reach $15,000 to $20,000 depending on the lender's calculation method and the exact rate differential.

Some lenders allow you to make additional repayments up to a certain limit without triggering break costs, often $10,000 to $30,000 per year. If you stay within that threshold and don't refinance or sell, no break cost applies. Once you exceed the threshold or exit the loan entirely, the calculation is triggered.

Break cost formulas vary between lenders. Some use a simple interest differential method, others use a more complex present value calculation that can result in a higher cost. The Economic Cost Method, used by most major lenders, discounts the interest differential back to present value, which increases the break cost when rates fall sharply. Always request a break cost estimate in writing before committing to refinance or sell during a fixed period.

Ongoing Account Fees and Package Costs

Monthly account-keeping fees apply to some home loan products, typically between $10 and $15 per month. This fee is charged regardless of whether the loan is fixed or variable. Many lenders offer a loan package that bundles the home loan with an offset account, redraw facility, and fee waivers in exchange for an annual package fee of $300 to $400. The package fee applies to the overall loan structure, not to each individual split if you hold both fixed and variable portions.

Offset accounts are rarely available on the fixed portion of a split loan. If you want an offset, you'll need to hold at least part of your loan on a variable rate. The offset links to the variable portion only, and any surplus funds reduce the interest charged on that balance. This is one of the practical trade-offs of fixing: you gain rate certainty but lose the flexibility of parking surplus cash in an offset to reduce interest in real time.

Some lenders charge a higher interest rate on fixed loans compared to their advertised variable rate, particularly during periods when the market expects rates to fall. This is not a fee, but it does represent an additional cost over the life of the fixed period if the variable rate remains lower. Always compare the fixed rate being offered against the current variable rate and consider whether the certainty is worth the potential premium.

Costs When Switching Between Fixed and Variable

If you're already in a fixed rate loan and want to switch to variable before the fixed term ends, this is treated as an early exit and triggers break costs. The same applies if you want to switch from variable to fixed mid-loan: the existing variable loan continues, and you're effectively refinancing into a new fixed product, which may involve application fees and valuation costs depending on the lender's policy.

Some lenders allow you to convert from variable to fixed without a full refinance, particularly if you're staying with the same lender. This is called a lock-in or rate switch, and it usually involves minimal paperwork and no valuation. However, you'll still be subject to the lender's current fixed rates at the time of conversion, which may be higher than the rate you could have secured earlier.

Split loan structures allow you to hold both fixed and variable portions within the same mortgage. This gives you partial protection against rate rises while maintaining access to offset accounts and flexible repayments on the variable side. If you later want to adjust the split, for example moving more funds from fixed to variable, the same break cost rules apply to the portion being exited early.

Refinancing Costs When Moving From Fixed to Another Lender

Refinancing during a fixed period involves break costs with your current lender, plus the full suite of application, valuation, and settlement fees with the new lender. Even if the new lender is offering a lower rate or better features, the combined cost of exiting and re-establishing the loan can outweigh the benefit, particularly if you're only part-way through the fixed term.

In our experience, borrowers who refinance during a fixed period without calculating break costs first often find the switch costs them more than staying put. Always request a break cost estimate and compare it against the total interest saving and feature improvements from the new loan. If the break cost is $18,000 and the interest saving over the remaining fixed period is $12,000, the refinance doesn't make financial sense unless there's a non-financial reason such as releasing equity or consolidating debt.

If you're planning to refinance an investment loan to access equity for a second purchase, timing the refinance to coincide with the end of your fixed period avoids break costs entirely. If the fixed period ends in six months and you can delay the second purchase, the saving on break costs may be worth the wait.

Portability and Fixed Rate Loans

Portability allows you to transfer your existing home loan to a new property without breaking the loan contract. Not all lenders offer portability, and among those that do, the rules differ for fixed rate loans. Some lenders allow you to port a fixed rate loan to a new property without triggering break costs, provided the loan amount and term remain the same. Others treat the sale of the original property as a discharge event and apply break costs regardless of whether you're buying another property.

If you're buying an investment property in Western Australia while renting elsewhere and you expect to sell and upgrade within a few years, portability becomes a relevant consideration. A fixed rate loan without portability could lock you into a high break cost if you need to sell earlier than planned. Speak to your broker about which lenders offer genuine portability on fixed products and what conditions apply.

How to Avoid Paying Unnecessary Costs on Fixed Loans

The most direct way to avoid break costs is to choose a fixed period that matches your actual horizon for holding the property and the loan. If you're likely to refinance, sell, or access equity within two years, a five-year fixed term exposes you to unnecessary risk. A shorter fixed term or a split structure with a smaller fixed portion reduces your exposure.

If you're using a guarantor to purchase an investment property, plan for the point at which you'll refinance to remove the guarantor once you've built sufficient equity. If that refinance is likely within 18 months, fixing the entire loan for three years will result in break costs when you exit early. In this scenario, a variable loan or a one-year fixed term may be more suitable.

Some lenders allow you to make extra repayments up to a set annual limit without penalty. If your loan allows $20,000 in additional repayments per year and you're receiving irregular income such as bonuses or rental top-ups, you can pay down the loan faster without triggering break costs. Check the product disclosure statement for the exact threshold and whether it resets each year or is cumulative over the fixed period.

Call one of our team or book an appointment at a time that works for you. We'll walk through the fee structures and break cost policies across the lenders we work with, and help you choose a fixed rate product that aligns with your actual plans for the property and the loan.

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