Do you know what happens during refinance settlement?

Refinance settlement coordinates three parties in a single transaction

Settlement during a refinance is when your new lender pays out your existing loan, the old lender releases the mortgage over your property, and the new lender registers their security interest. Unlike a property purchase where funds change hands between buyer and seller, refinance settlement is a discharge and registration process managed between lenders, your solicitor or conveyancer, and the land titles office.

In practice, your new lender transfers funds to your old lender on settlement day, covering the outstanding loan balance plus any accrued interest and discharge fees. Your existing lender then releases their mortgage, and your new lender registers theirs. The process typically takes place electronically through the Property Exchange Australia Limited (PEXA) platform in New South Wales, though some lenders still use paper-based settlement in specific circumstances.

Consider a Northmead homeowner refinancing a loan secured against a property near Binalong Reserve. They're moving from a lender charging a higher variable rate to one offering an offset account and lower ongoing costs. On settlement day, their new lender advanced funds to discharge the existing loan of $620,000, paid the old lender's discharge fee of $395, covered the new lender's settlement fee of $250, and registered the new mortgage. The homeowner's solicitor coordinated timing across all parties to ensure the discharge and new registration occurred simultaneously, preventing any gap in security.

The mechanics matter because delays or miscommunication during settlement can result in additional interest being charged by your old lender, particularly if settlement is scheduled for mid-month and the discharge doesn't occur until later in the day. Your solicitor manages the settlement statement, which itemises every cost deducted from the loan advance, including government fees, lender charges, and any adjustments for rate changes or payment timing.

What costs are deducted at refinance settlement?

Refinance settlement involves discharge fees from your existing lender, registration fees for the new mortgage, solicitor or conveyancer fees, and in some cases, break costs if you're exiting a fixed rate loan before the end of the term.

Discharge fees typically range from $300 to $450 depending on the lender. Registration fees in New South Wales vary based on the loan amount but generally sit between $150 and $200 for a standard mortgage registration. Your solicitor or conveyancer will charge separately for coordinating settlement, reviewing documents, and liaising with both lenders. These professional fees usually range from $800 to $1,500 depending on complexity.

If your fixed rate period is ending within a few weeks of settlement, timing the refinance to coincide with the expiry avoids break costs entirely. If you're exiting a fixed rate early, break costs are calculated based on the difference between your contracted rate and the lender's current wholesale funding cost for the remaining fixed period. These costs are deducted at settlement and can range from negligible amounts to several thousand dollars depending on how far rates have moved since you fixed.

In a scenario where a Northmead homeowner is refinancing to access equity for a deposit on an investment property in Parramatta, the settlement statement would also reflect the cash-out component. If the property is valued at $1,750,000 and the existing loan balance is $620,000, refinancing to 80% of the property value allows a new loan of $1,400,000. After paying out the old loan and covering settlement costs, the remaining funds are transferred to the homeowner's nominated account, typically within one to two business days after settlement.

How long does refinance settlement take after approval?

Settlement typically occurs four to six weeks after your refinance application is formally approved, though this timeline depends on the lender's processing capacity, the complexity of your loan structure, and how quickly your solicitor can prepare documents.

Once your application is approved, the new lender issues a formal loan offer. After you sign and return the offer, the lender instructs their settlement agent to prepare mortgage documents and coordinate with your solicitor. Your solicitor requests a payout figure from your existing lender, which is valid for a specific date and must be recalculated if settlement is delayed. The new lender then books a settlement date, usually within two to three weeks of receiving your signed loan documents.

Northmead sits within the Parramatta local government area, where property transactions are processed through NSW Land Registry Services. Electronic settlement through PEXA has reduced the settlement window from several days to a few hours in most cases, though both lenders and your solicitor must be registered on the platform and prepared to settle electronically.

Delays most commonly occur when the new lender requires updated property valuations, additional income verification, or clarification on title issues identified during their final checks. If you're coordinating refinance settlement with the purchase of another property, timing becomes more sensitive. Your solicitor will schedule both settlements on the same day where possible, ensuring funds from the equity release are available to complete the purchase.

What happens if settlement is delayed?

If settlement doesn't occur on the scheduled date, your existing lender continues to charge interest at the old rate, and the payout figure provided to your new lender becomes invalid.

Your old lender calculates the payout figure based on a specific settlement date. If that date passes, accrued interest increases the balance owing, and your solicitor must request a revised payout figure. This can push settlement back by several days while updated figures are confirmed and the new lender adjusts the settlement statement. In situations where you've locked in a rate with your new lender and the rate lock expires before settlement, you may lose the agreed rate and revert to the lender's current pricing.

We regularly see delays caused by incomplete documentation, such as missing signatures on mortgage documents or outdated identification provided during the application stage. If your lender flags these issues days before settlement, the entire process can stall. Another common issue arises when the property valuation ordered by the new lender comes in lower than expected, requiring a larger deposit or a smaller loan amount than initially approved.

In one scenario, a Northmead homeowner refinancing a loan secured against a property near Marian Street Public School experienced a two-week delay when their new lender identified a caveat on title that hadn't been disclosed during the application. The caveat related to a previous dispute with a tradesperson and required formal removal before the new lender would settle. The delay resulted in an additional two weeks of interest at the old rate, costing roughly $650 in foregone savings.

Can you still use your offset or redraw during the refinance process?

You retain full access to offset accounts and redraw facilities with your existing lender until settlement occurs, though withdrawing funds immediately before settlement can complicate the payout process.

Your existing loan remains active and fully functional until the moment your old lender receives the discharge funds from your new lender. If you have an offset account, the balance continues to reduce interest charged on your loan. If you have a redraw facility, you can still access available funds. However, any withdrawal made in the days leading up to settlement will increase the payout figure, and if your solicitor has already provided that figure to the new lender, the discrepancy can delay settlement while updated figures are confirmed.

If you're refinancing specifically to access an offset account or improve redraw terms, the new features only become available after settlement is complete and your first loan account is active with the new lender. Depending on the lender, it can take an additional few business days after settlement for offset accounts to be linked and operational.

Does refinance settlement affect your credit file?

Refinance settlement results in your old loan being marked as closed and your new loan being reported as opened, both of which appear on your credit file as separate events.

The closed loan is recorded as discharged or paid in full, which is a neutral event from a credit perspective. The new loan is reported as a new credit account, which can temporarily lower your credit score due to the inquiry and the increase in reported debt if you've borrowed additional funds. However, if you maintain consistent repayments on the new loan, your score typically recovers within a few months.

Lenders assess refinance activity differently depending on frequency. Refinancing every few years to secure lower rates or improved features is considered normal lending behaviour. Refinancing multiple times within a single year, particularly if combined with increases in loan size, can raise questions about financial stability and may affect future borrowing capacity.

If you're planning to apply for additional credit shortly after refinancing, such as a car loan or investment loan, speak with your broker before proceeding. Timing applications to avoid multiple inquiries within a short window helps preserve your credit profile and borrowing capacity.

When should you schedule refinance settlement?

Schedule settlement to occur just after your next mortgage payment is due with your existing lender, minimising the interest adjustment period and avoiding double payments.

Most home loans calculate interest daily and charge it monthly in arrears. If you settle mid-month, your old lender will calculate interest from your last payment date up to settlement day, and that amount is added to the payout figure. Your new lender will then begin charging interest from settlement day onward. Scheduling settlement a day or two after your regular payment date with the old lender reduces the accrued interest component of the payout and aligns your first payment with the new lender more cleanly.

If you're exiting a fixed rate and your fixed period ends mid-month, settling as close as possible to the expiry date avoids break costs while still capturing the timing benefit. Your solicitor can coordinate the exact settlement date with both lenders once the loan is formally approved and documents are prepared.

Refinancing involves coordinating timing, costs, and communication across multiple parties. Each decision during the process affects either your immediate costs or your long-term loan structure, and small delays or overlooked details can erode the financial benefit you're refinancing to achieve. Call one of our team or book an appointment at a time that works for you.

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