Common Mistakes in Refinancing Settlement Procedures

What Happens During Refinancing Settlement

Refinancing settlement is the process where your new lender pays out your existing loan and registers a new mortgage over your property. The settlement period typically runs for four to six weeks after loan approval, during which the new lender coordinates with your current lender, prepares discharge documents, and arranges for the title transfer with Land Titles Office ACT.

Most delays happen because borrowers assume the new lender handles everything without input. Your existing lender will send a discharge authority to your new lender, but they will also send you a final payout figure that includes accrued interest and any exit fees. If you have an offset account or redraw facility with your current lender, any funds sitting in those accounts need to be withdrawn before settlement, or they will be applied against the loan balance without your explicit instruction.

Consider a borrower refinancing a $650,000 mortgage on a property in Ainslie. Their existing lender calculates a payout figure that includes 17 days of additional interest because settlement falls mid-month. The borrower has $22,000 sitting in an offset account but does not withdraw it before settlement. The existing lender applies that $22,000 to reduce the payout figure, and the new lender advances a loan amount that is $22,000 less than expected. The borrower now needs to find that cash elsewhere or request a loan variation, which delays settlement by another two weeks.

Why Property Valuations Can Delay Settlement

The new lender will order a property valuation as part of the refinancing approval process, but if that valuation comes in lower than expected, your loan amount may be reduced or your loan-to-value ratio recalculated. This is particularly relevant in Ainslie, where older homes on large blocks can be valued inconsistently depending on whether the valuer emphasises land value or dwelling condition.

If you are relying on a specific loan amount to pay out your existing mortgage and access additional equity, a lower valuation can leave you short. The new lender may still approve the loan but at a higher interest rate tier, or they may ask you to contribute additional funds to maintain the intended loan-to-value ratio. Some borrowers only discover this a few days before settlement, at which point their options are limited.

Discharge Fees and Break Costs on Fixed Rate Loans

Your existing lender will charge a discharge fee, typically between $150 and $400, to release the mortgage and provide discharge documents to the new lender. If you are coming off a fixed rate period, you may also face break costs if you refinance before the fixed term ends.

Break costs are calculated based on the difference between your fixed rate and the wholesale rate your lender can now lend that money at for the remaining fixed period. If rates have fallen since you fixed, break costs can be substantial. If rates have risen, break costs may be zero or minimal. Your existing lender is required to provide a break cost estimate when you request a payout figure, but this figure can change daily as wholesale rates fluctuate.

In our experience, borrowers who refinance within three months of their fixed rate expiry often pay break costs that exceed the interest rate savings they expect to achieve in the first year with the new lender. If your fixed rate period is ending soon, waiting until expiry may deliver a better financial outcome than refinancing early.

Coordinating Discharge and Settlement Dates

Settlement cannot occur until your existing lender provides a discharge authority to the new lender and confirms the final payout figure. If your existing lender is slow to issue the discharge authority, settlement will be delayed regardless of how prepared the new lender is.

Your solicitor or conveyancer coordinates the settlement process, but they rely on both lenders to provide documents on time. If you are refinancing without a solicitor, which some lenders allow for straightforward refinances, the new lender's settlement team will manage the process, but you lose the buffer that a solicitor provides when issues arise.

For properties in Ainslie, where many homes are older and have complex title histories, using a solicitor who understands ACT land titles can reduce the risk of last-minute complications. Some properties in the inner north have caveats, easements, or covenants registered on the title that require additional documentation before the new lender will settle.

When Offset Accounts and Redraw Facilities Complicate Settlement

If your current loan has an offset account or redraw facility, those features disappear once the loan is paid out. Any funds in an offset account need to be transferred to another account before settlement. Any funds available for redraw will be inaccessible once the discharge is processed.

Some borrowers assume their new lender will automatically replicate their offset account structure, but not all refinance products include offset accounts, and even when they do, the new offset account is not active until after settlement. You may have a gap of several days where your funds are not offsetting any loan, which means you will pay interest on the full loan balance during that period.

If you are refinancing to access equity, the equity release is typically structured as an increased loan amount, with the additional funds paid to you at settlement or shortly after. If you need those funds by a specific date, confirm the timing with your new lender before committing to settlement.

How to Prepare for Settlement as a Borrower

Request a payout figure from your existing lender as soon as your refinance application is approved. This gives you time to identify any unexpected fees or accrued interest charges. Confirm whether your current loan has any exit fees, particularly if it is a fixed rate loan or a package loan with annual fees.

Withdraw any funds from your offset account or redraw facility at least three business days before settlement. Confirm with your new lender that they have received the discharge authority from your existing lender. If settlement is delayed, you may continue to pay interest to your existing lender, and you may also face extension fees from the new lender if the delay pushes settlement beyond the initial approval expiry.

For Ainslie residents refinancing to access equity for an investment property or renovation, timing is often critical. A delayed settlement can mean missing out on a property purchase or contractor availability. Building in a one-week buffer between your expected settlement date and any dependent transactions reduces this risk.

What Happens If Settlement Is Delayed

If settlement does not occur on the scheduled date, your existing lender will continue to charge interest, and you may face penalty interest or extension fees depending on the terms of your loan contract. The new lender may also charge an extension fee if settlement is delayed beyond the initial approval period, though this is less common if the delay is caused by the existing lender.

In some cases, the new lender will need to revalue the property if settlement is delayed by more than 90 days, which can reset the approval process entirely. If interest rates have increased during the delay, the new lender may also reprice the loan, which can change the interest rate or loan features you were originally approved for.

Call one of our team or book an appointment at a time that works for you. We will manage the settlement process from approval through to discharge, coordinating with both lenders and your solicitor to confirm every document is in place before the scheduled settlement date.

Frequently Asked Questions