The first $50,000 are free (aside from the $99 commercial license) and after that you have to pay 25% in royalties. I don't think they increase again.
If you have a license for UE3 you don't pay royalties, so this may be cheaper for you if you expect the game to sell well enough, plus as a licensee of UE3 you get full access to the source code and you can modify the engine to your needs!