Common Refinance Settlement Mistakes and How to Avoid Them

Refinance settlement is the day your new lender pays out your old loan and takes over your mortgage. Most of the problems at this stage come from timing and paperwork, and you can avoid them if you know the order of events.

If you are a Geelong homeowner coming off a fixed rate or moving to a lower rate, this is what to check before settlement day.

What Happens on Refinance Settlement Day?

On settlement day, your new lender sends funds to your old lender to pay out the loan. Your old lender then releases its mortgage over your property, and the new lender's mortgage takes its place.

You usually do not need to attend. Settlement is booked by the new lender or its representative, often through an online platform where both lenders and their representatives complete the transfer. The result is that your old loan is closed and your new loan starts with the balance paid out.

Before that day, your new lender will have assessed your refinance application, arranged a property valuation and issued loan documents for you to sign. Settlement cannot be booked until those steps are done.

Refinance Settlement Timeline: Who Does What

The refinance process runs in a set order: approval, signed documents, a discharge request to your old lender, then a booked settlement. Timeframes vary between lenders, so ask your broker for the dates that apply to your loan.

In practice, the steps look like this:

1. Your new lender approves the loan, subject to a valuation and your documents.
2. You sign the loan contract and any other documents the new lender sends.
3. A discharge authority is signed so your old lender can release its mortgage.
4. Your old lender provides a payout figure for the settlement date.
5. Settlement is booked and completed.

A common cause of delay is the payout figure. It changes day by day, so it has to be requested for the actual settlement date. If it is out of date, the new lender may send too little to close the loan.

Discharge Fees and Break Costs: Check Before You Sign

Your old lender may charge fees to close the loan, and a fixed loan ended early can carry break costs. Ask for both figures in writing before you accept your new loan.

Break costs matter most if your fixed rate period is ending soon. Leaving on the expiry date usually avoids them, while leaving early can trigger a charge that depends on how rates have moved. A lower rate on the new loan has to outweigh these costs to be worth it. Your broker can compare the saving against the exit costs before you commit.

Overlapping Repayments: An Example at 6.75%

Interest keeps accruing on your old loan until it is paid out. In an illustrative example, a balance of $500,000 at 6.75% p.a. accrues about $92 in interest per day. You would owe that interest anyway, so what a delay really costs you is the difference between the old and new rates for each extra day, plus any fees or rate changes the delay triggers.

Consider a Geelong homeowner whose fixed rate has just ended. The loan has about $500,000 owing. Settlement is booked for the last day of the month, but the new lender is waiting on a signed document and the booking slips by five days. Over those five days, interest on the old loan is about $460 at the illustrative 6.75% rate. If the new rate is 1 percentage point lower, the delay costs roughly $68 in lost savings. Your actual rates will differ, so the amounts will too.

In this scenario the broker chases the document on the day it is missed and asks the new lender to rebook straight away. The old lender is asked for an updated payout figure, so the new lender sends the correct amount. The slip stays small instead of turning into a short payout and a second round of delays.

The lesson is to return signed documents the same day and ask your broker to confirm the settlement date once the documents are in.

Redraw, Offset and Direct Debits Through Settlement

Your old loan's redraw balance and offset account do not move across on their own. Plan for them before settlement so your money ends up where you expect.

If you have redraw funds, ask your old lender whether they will be applied to the payout or paid to you, and when. If you have an offset account, check whether your new loan offers one. Then open it and move your savings across once the new loan is live. This is a trade-off to weigh when comparing loans. A loan with an offset account can carry a higher rate or annual fee than one without, depending on the lender.

Also keep an eye on automatic payments. Do not cancel the direct debit on your old loan until settlement is confirmed. Set up the repayment on the new loan as soon as it is open, so you do not miss the first one.

Should You Review Your Loan Before Settlement?

Yes. A loan review before you accept an offer shows whether the new loan suits your goals once fees, features and repayments are counted. A loan health check is a good place to start.

It is worth checking that the loan amount, term and repayment type match what you intended. If you are rolling in extra debt or adjusting the term, the repayments will change. For homeowners across Geelong and the surrounding region, a local broker can step through these numbers with you before anything is signed.

A refinance only saves money if the exit costs, new fees and ongoing repayments all work in your favour. Use a calculator to test the numbers, and ask for the full list of costs on both loans.

If you are planning to refinance and want settlement handled properly, call one of our team or book an appointment at a time that works for you. We will walk you through each step and keep you updated until your new loan is live.

Frequently Asked Questions