What does it cost to break a fixed mortgage when selling?

What the figure turns on

A break cost is not a penalty set in advance. It is the lender's calculation of what it loses by having the loan repaid early, and three things drive it.

• The rate your loan is fixed at. The starting point of the whole calculation.
• How long is left to run. A loan close to the end of its fixed term has less to unwind than one that has just been fixed.
• Where wholesale rates have moved since you fixed. This is the part nobody controls, and it can mean the cost is substantial or close to nothing.

Because the third one moves, a quoted break cost is only good for a short time. A figure you were given weeks ago is not the figure you will pay.

How to find out yours

Ask your lender for a written break cost quote, and ask what date it is calculated to. Do it twice: once before you decide to sell, so the number is part of the decision, and again close to settlement, so the figure your lawyer works to is current.

Ask at the same time whether any part of your lending is on a floating rate or in an offset or revolving facility, because those parts usually carry no break cost and the total is often smaller than people assume.

The option that avoids it

Some lenders will let a fixed loan move across to a new property rather than be broken. It is usually called porting, or substitution of security. Whether it is available, what it costs, and what conditions attach to it are all questions for your lender, and the answers differ between banks and between loans.

Where it is available it can make the settlement dates matter a great deal, since the loan often has to move within a set window. If you are buying and selling, raise it with the lender before either date is agreed.

When it gets paid

The break cost is settled when the loan is repaid, which is on settlement day, and it comes out of the sale proceeds before the balance reaches you. It belongs in your calculation of what you walk away with, alongside the loan itself.