Early Exit Fee

Early Exit Fee is a penalty charged when you close your loan (refinance, sell, or pay off) within the first 1-4 years. Lenders use this fee to discourage frequent refinancing and recoup acquisition costs—it's separate from and in addition to standard discharge fees.

How Early Exit Fees Work

When lenders offer competitive rates, they invest in attracting you—marketing, broker commissions, application processing. If you refinance away within 12-24 months, they lose money. Early exit fees discourage this.

Typical structure:

• Exit fee applies: First 1-4 years of loan
• Fee amount: $500-$3,000 (flat fee, not percentage)
• Decreases over time: $3,000 year 1, $2,000 year 2, $1,000 year 3, $0 year 4+
• Charged in addition to discharge fee

Example:

• Take loan in January 2024
• Refinance in March 2025 (14 months later)
• Loan terms: Early exit fee $1,500 if within first 2 years
• Charged: $1,500 early exit fee + $350 discharge fee = $1,850 total

Exit Fee vs Discharge Fee

Early Exit Fee

• Purpose: Penalty to discourage frequent refinancing
• When: Only if exiting within first 1-4 years
• Amount: $500-$3,000 (flat fee)
• Example: $1,200 if refinancing within 3 years

Discharge Fee

• Purpose: Admin cost to close loan and remove mortgage
• When: Every loan closure (any time)
• Amount: $300-$800
• Example: $350 always charged when loan closes

Both fees apply if exiting early:

Example (refinancing after 18 months):

• Early exit fee: $1,500 (within 3-year period)
• Discharge fee: $350 (standard admin cost)
• Total: $1,850

Example (refinancing after 5 years):

• Early exit fee: $0 (outside 3-year period)
• Discharge fee: $350 (standard admin cost)
• Total: $350

Typical Early Exit Fee Structures

Flat Fee, Single Period

Example:

• Exit within 3 years: $1,200 fee
• After 3 years: $0 fee

Simple structure, common with major banks.

Declining Fee Over Time

Example:

• Year 1: $3,000 fee
• Year 2: $2,000 fee
• Year 3: $1,000 fee
• Year 4+: $0 fee

Graduated structure, softens penalty over time.

Percentage-Based Fee (Rare)

Example:

• Exit within 2 years: 1% of original loan amount
• $600,000 loan: $6,000 fee
• Expensive, uncommon in Australia

Tiered by Discount Depth

Example:

• Standard rate loan (6.3%): No exit fee
• Discounted rate loan (5.9%): $1,800 exit fee if within 4 years
• Deep discount loan (5.4%): $3,000 exit fee if within 4 years

Deeper discount = higher exit fee.

When Early Exit Fees Apply

1. Refinancing to Another Lender

Most common trigger.

Example:

• Take loan: January 2024 @ 5.89%
• Rates drop: September 2024, competitor offers 5.39%
• You refinance: October 2024 (10 months in)
• Early exit fee: $2,500 (within first year)
• Must pay $2,500 to switch

Cost-benefit:

• Interest saving: 0.5% on $650,000 = $3,250/year
• Exit fee: $2,500
• Refinancing costs: $1,800
• Total cost: $4,300 to switch
• Year 1 net benefit: -$1,050 (loss)
• Year 2+ benefit: $3,250/year (exit fee already paid)

Break-even: 16 months

2. Selling Property

Unavoidable if you sell early.

Example:

• Buy home: January 2024
• Relocate for work: June 2025 (18 months later)
• Must sell property
• Early exit fee: $1,800 (within 3-year period)
• Pay from sale proceeds (no choice)

3. Paying Off Loan Early

Inheritance, windfall, business sale.

Example:

• Loan: $580,000, taken 14 months ago
• Inheritance: $600,000
• Want to pay off loan
• Early exit fee: $2,200 (within 2-year period)
• Total payout: $582,200 (loan + exit fee + discharge fee)

4. Switching Products with Same Lender

Usually no early exit fee when staying with same lender.

Example:

• Current: ANZ variable loan (12 months old)
• Switch to: ANZ fixed loan
• Early exit fee: $0 (internal switch)
• Only charged when leaving the lender

Calculating Total Exit Costs

Example 1: Refinancing After 12 Months

Loan details:

• Loan: $620,000
• Rate: 6.1%
• Taken: 12 months ago
• Early exit fee: $2,000 (within 3 years)

New opportunity:

• New rate: 5.6% (saving 0.5%)
• New lender application fee: $600

Total costs to switch:

• Early exit fee: $2,000
• Discharge fee: $350
• New lender application: $600
• Valuation: $400
• Legal: $600
• Total: $3,950

Annual interest saving:

• 0.5% × $620,000 = $3,100/year

Analysis:

• Year 1 cost: $3,950 - $3,100 = -$850 loss
• Year 2+ savings: $3,100/year
• Break-even: 15 months (worth it if keeping new loan 2+ years)

Example 2: Refinancing After 4 Years

Same loan, different timing:

• Loan: $560,000 (paid down from $620K)
• Taken: 4 years ago
• Early exit fee: $0 (outside 3-year period)

Total costs to switch:

• Early exit fee: $0
• Discharge fee: $350
• Refinancing costs: $1,950
• Total: $2,300 (vs $3,950 in Example 1)

Break-even: 9 months (much better)

Avoiding Early Exit Fees

1. Wait Out the Exit Fee Period

If not urgent, wait until fee expires.

Example:

• Current month: 32 months into loan
• Early exit fee: Applies until month 36
• Better rate available: Saves $2,800/year
• Early exit fee: $1,000

Option A: Refinance now

• Save: $2,800/year
• Cost: $1,000 exit fee + $2,000 refinancing
• Net year 1: -$200 loss

Option B: Wait 4 months

• Save: $2,800/year (lose 4 months = $933)
• Cost: $0 exit fee + $2,000 refinancing
• Net year 1: -$133 (slightly better)

Best: Wait 4 months unless rate difference is huge.

2. Negotiate with Current Lender

Call retention team before applying elsewhere.

Example:

• Current rate: 6.5%
• Competitor rate: 5.9%
• Early exit fee if you leave: $1,800

Call lender:

• "I've been offered 5.9%, but don't want to pay $1,800 exit fee"
• Lender offers: 6.1% (meets you halfway)
• Accept 6.1%, avoid $1,800 fee + $2,000 refinancing costs

Even though 6.1% isn't as good as 5.9%:

• 6.1% vs 6.5%: Save $2,480/year on $620,000
• No exit fee or refinancing costs: Save $3,800
• Total year 1 benefit: $6,280 (vs $2,800 - $3,800 = -$1,000 loss if refinancing)

3. Choose No-Exit-Fee Loans

When taking out new loan, avoid exit fees.

Comparison:

• Loan A: 5.79%, $1,500 exit fee if within 3 years
• Loan B: 5.89%, $0 exit fee

If you might refinance within 3 years:

• Loan B is better (0.1% higher but no exit fee risk)

Cost over 2 years ($600,000 loan):

• Loan A: 5.79% = $68,280 interest + $1,500 exit fee = $69,780
• Loan B: 5.89% = $69,480 interest + $0 exit fee = $69,480
• Loan B is $300 cheaper if you refinance within 2 years

4. Check Contract Before Signing

Early exit fees are in the loan contract—read carefully.

Look for:

• "Early termination fee"
• "Prepayment penalty"
• "Economic cost"
• "Exit fee if within X years"

Example:

• Page 8 of contract: "Early termination fee of $2,200 applies if loan is discharged within 48 months"
• You know upfront: Stay 4+ years or pay $2,200

Exit Fees on Different Loan Types

Fixed Rate Loans

Exit fees + break costs = expensive.

Example:

• Fixed @ 5.5% for 4 years
• Exit after 18 months
• Early exit fee: $1,200 (within 4 years)
• Break costs: $8,500 (rates fell)
• Discharge fee: $350
• Total: $10,050 (very expensive)

Fixed loans punish early exit heavily.

Variable Rate Loans

Exit fees only (no break costs).

Example:

• Variable @ 6.1%
• Exit after 18 months
• Early exit fee: $1,200 (within 3 years)
• Break costs: $0 (variable, no break costs)
• Discharge fee: $350
• Total: $1,550 (manageable)

Interest-Only Loans

Same exit fee structure as P&I.

Example:

• Interest-only investment loan
• Exit fee: $1,800 if within 3 years
• Same penalty as principal & interest loans

Line of Credit

Often no exit fees (flexible products).

Example:

• Line of credit @ 7.2%
• Close after 8 months
• Exit fee: $0 (designed for flexibility)
• Discharge fee: $595
• Total: $595

Early Exit Fees by Lender Type

Major Banks

Moderate exit fees:

• Commonwealth Bank: $700-$1,200 (within 3 years)
• Westpac: $900 (within 4 years)
• NAB: $750 (within 3 years)
• ANZ: $0-$900 (varies by product)

Range: $0-$1,200

Non-Bank Lenders

Higher exit fees (aggressive rates):

• Pepper Money: $1,500 (within 3 years)
• Liberty: $1,800 (within 4 years)
• La Trobe Financial: $2,200 (within 4 years)

Range: $1,500-$2,500

Why higher?

• Offer very competitive rates
• Higher broker commissions
• Need to recoup costs if you leave early

Online/Low-Fee Lenders

Lower or no exit fees:

• Athena: $0 (no exit fee)
• UP Home Loans: $0 (no exit fee)
• Unloan: $0 (no exit fee)

Range: $0

Marketing strategy: Transparency, no hidden fees, encourage refinancing in/out.

Is Refinancing Worth It with Exit Fees?

Break-Even Calculation

Formula: Break-Even (months) = Total Exit Costs ÷ Monthly Interest Saving

Example:

• Exit costs: $3,600 (exit fee + refinancing)
• Current rate: 6.4%
• New rate: 5.9%
• Interest saving: 0.5% on $620,000 = $258/month
• Break-even: $3,600 ÷ $258 = 14 months

Worth it if:

• You'll keep new loan 14+ months
• Rates won't rise significantly (variable loans)

Not worth it if:

• Planning to sell within 12 months
• Only saving 0.2-0.3% (long break-even period)

Large Savings Override Exit Fees

Example:

• Exit fee: $2,000
• Refinancing costs: $2,200
• Total: $4,200
• Current rate: 7.1%
• New rate: 5.9%
• Saving: 1.2% on $680,000 = $8,160/year

Analysis:

• Year 1: Save $8,160, cost $4,200 = $3,960 net benefit
• Year 2+: Save $8,160/year (no more exit costs)
• Break-even: 6 months (definitely worth it)

When rate difference is 1%+, exit fees are minor.

Common Mistakes

1. Not Checking for Exit Fees Before Refinancing

Mistake:

• See better rate, apply to refinance
• Get approved
• Request payout figure: $1,800 exit fee (surprise)
• Refinancing no longer worth it
• Wasted application time and fees

Solution: Check loan contract for exit fees BEFORE applying.

2. Assuming Exit Fees Don't Apply After 12 Months

Mistake:

• "I've had the loan 15 months, no exit fee"
• Exit fee applies: Within 3 years (36 months)
• Charged $1,500 unexpectedly

Solution: Check exact exit fee period (1-4 years varies by lender).

3. Forgetting Exit Fee When Selling

Mistake:

• Budget for settlement based on loan balance
• Exit fee: $2,100 (not budgeted)
• Short on funds for next purchase deposit

Solution: Request payout figure early (includes exit fees).

4. Paying Exit Fee Too Close to Expiry

Mistake:

• Month 34 of 36-month exit fee period
• Refinance now, pay $1,000 fee
• Wait 2 months, pay $0

Solution: If close to exit fee expiry, wait (unless huge rate saving).

Tax Treatment of Exit Fees

Investment Properties

Exit fees are tax-deductible borrowing expenses.

Example:

• Early exit fee: $1,800
• Tax deduction: $1,800 over 5 years = $360/year
• Tax rate: 39%
• Annual tax saving: $140
• Total tax benefit: $702 over 5 years

Net cost: $1,800 - $702 = $1,098

Owner-Occupied Homes

Not tax-deductible.

Example:

• Early exit fee: $1,800
• Tax deduction: $0
• Full cost: $1,800

Real-World Scenarios

Example 1: Exit Fee Makes Refinancing Not Worth It

Situation:

• Loan: $550,000 @ 6.3%, 16 months old
• New rate: 5.9% (save 0.4%)
• Early exit fee: $2,000 (within 3 years)
• Refinancing costs: $2,300

Analysis:

• Total cost: $4,300
• Annual saving: 0.4% × $550,000 = $2,200
• Break-even: 23 months (almost 2 years)

Decision: Not worth it (break-even too long, rates might change).

Example 2: Selling Early (Unavoidable Fee)

Situation:

• Bought home 10 months ago
• Job transfer to another city
• Must sell
• Early exit fee: $1,500 (within 2 years)

Settlement:

• Sale price: $780,000
• Loan payout: $615,000
• Exit fee: $1,500
• Discharge fee: $350
• Net after loan: $163,150

No choice—exit fee is unavoidable cost of selling.

Example 3: Worth Paying Exit Fee

Situation:

• Loan: $720,000 @ 6.8%, 20 months old
• New rate: 5.9% (save 0.9%)
• Early exit fee: $1,800 (within 4 years)
• Refinancing costs: $2,400

Analysis:

• Total cost: $4,200
• Annual saving: 0.9% × $720,000 = $6,480
• Break-even: 8 months (excellent)
• Year 1 net benefit: $2,280
• Definitely worth refinancing

Final Thoughts

Early exit fees protect lenders from refinancing losses—typically $500-$3,000, they apply for 1-4 years and can make or break refinancing decisions.

Key principles:

• Check loan contract for exit fee terms before signing
• Factor exit fees into refinancing break-even calculations
• Wait out exit fee period if close to expiry (within 3-6 months)
• Negotiate with current lender to avoid exit fees
• Large rate differences (1%+) override exit fee concerns

Refinancing decision framework:

Green light (refinance despite exit fee):

• Rate saving 0.8%+ on large loan
• Break-even under 12 months
• Planning to keep new loan 3+ years

Amber light (consider carefully):

• Rate saving 0.4-0.7%
• Break-even 12-24 months
• Exit fee close to expiry

Red light (don't refinance):

• Rate saving under 0.3%
• Break-even over 24 months
• Exit fee expires in 3-6 months (wait)

Typical costs:

Refinancing after 18 months (exit fee applies):

• Early exit fee: $1,500
• Discharge fee: $350
• New loan costs: $2,200
• Total: $4,050

Refinancing after 4 years (no exit fee):

• Early exit fee: $0
• Discharge fee: $350
• New loan costs: $2,200
• Total: $2,550 ($1,500 less)

Speak to a NIK Finance broker before refinancing—they'll check your current loan for exit fees, calculate break-even periods, and help determine if refinancing makes financial sense given all costs.

Early exit fees are designed to discourage frequent refinancing—but when rate savings are substantial (0.8%+), paying the exit fee is worth it. Always run the numbers before deciding.