Why breaking a fixed rate loan wasn't a mistake
A fixed rate locks your interest rate in place for a set period, no matter what the market does. You know exactly what you'll pay each month. The trade-off is you don't benefit if rates fall, and if you want out early, you usually pay an exit fee to break the agreement.
I fixed at 5% for five years in 2018. At the time that wasn't a bad call. Pricing was known, and the commentary going around was that rates were heading up, not down. Fixing felt like protection against exactly that.
A couple of years in, the reasoning behind the loan hadn't changed, but my circumstances had. The structure around it, my dad on the title as he headed into retirement, my mum's guarantee still tied up through her own investment property, was standing between me and a purchase I was actually ready to make. I had the deposit sorted and the serviceability worked out. What I didn't have was a structure that let me act on it.
Breaking the loan cost $13,000 in exit and restructure fees. On its own, that looks like a straightforward loss. Given why I'd fixed in the first place, it would've been easy to treat the rate as untouchable and just wait it out.
I'll be honest, at the time I had no idea rates were about to fall the way they did. It's tempting to read this back now and think the call was obviously right. It wasn't obvious then. What I did know was the structure was blocking a real purchase, not a hoped-for one, and $13,000 was a bounded cost against an open-ended one. Breaking the loan separated the transaction from my dad, released my mum's guarantee, and within six months I'd released about $100,000 in equity and settled the next purchase, before the original fixed term would even have expired. Rates then dropped hard through COVID, consumer rates down to around 2% against a cash rate near 0.1%, so the rate I'd broken wasn't even competitive by the time it would have ended anyway. That was a bonus. It wasn't the reason.