What are break costs and early payment interest adjustment (EPIA) penalties?
Break costs are fees that occur when you “break” a fixed rate loan. There is also a cost for paying off part of a fixed loan usually called and early payment interest adjustment (EPIA). Why do these fees exist? When you choose to fix your loan, the lender will also hedge or lock in some of their borrowing costs over their whole portfolio, and this will cost them money. So the lender charges you for breaking your fixed loan to cover their costs. If they allowed borrowers to break their fixed loans, this would raise the cost of fixed loans quite considerably, as this would need to be factored into the cost. It usually works out that if rates have gone up (and the underlying swap rates of your loan have gone up) after you lock in, there will be no break costs (there may be some other admin charge). However if rates go down (along with the underlying swap rate) this is when you will usually be charged an amount of money. So you get charged when it would otherwise suit you to break the fixe
