Comparing options and applying
Refinancing generally starts with reviewing your current loan against other options in the market, considering the interest rate, fees, features such as offset or redraw, and any exit costs on your existing loan. Once you've chosen a new lender, you submit an application with supporting documents, similar to a new purchase application, including proof of income, identification and details of your existing loan. The new lender will assess your ability to service the loan, and if you're increasing the loan amount, this assessment is generally stricter, factoring in current interest rate buffers. It's worth checking whether your current loan has any break costs, particularly if it's fixed, since these can affect whether refinancing makes financial sense at a given time.
Valuation and approval
As part of the refinance application, the new lender usually orders a valuation of your property to confirm its current value supports the new loan amount, particularly important if you're accessing equity. Once the valuation and your documents are verified, the lender issues approval, which may be conditional at first and then unconditional once all checks are complete. If approval reveals the property value is lower than expected, this can affect the loan-to-value ratio and potentially the interest rate or lender's mortgage insurance requirements, so it's worth having a buffer in mind rather than assuming the full amount will be approved.
Requesting a discharge and payout figure
Once you've accepted the new loan offer, you typically need to formally request a discharge from your current lender, which involves them calculating a payout figure, the exact amount required to fully repay your existing loan, including any interest accrued and discharge fees. Many lenders require this discharge request to be lodged a set number of business days before the intended settlement date, so timing this correctly with your new lender is important to avoid delays. The payout figure is usually valid only for a short window and may need to be updated if settlement is delayed, since daily interest continues to accrue until the loan is actually repaid.
Settlement and registration
On the day of refinance settlement, the new lender pays out the old loan directly to your existing lender using the payout figure, and any surplus funds, for example if you're refinancing to access equity, are released to you. At the same time, the mortgage on your property is discharged from the old lender and a new mortgage is registered in favour of the new lender, generally coordinated electronically through platforms such as PEXA in most states. This registration step is what legally secures the new lender's interest in the property, and it typically happens on the same day as settlement, so there's usually no gap where the property is unsecured.
After refinancing
After settlement, it's worth confirming your first repayment date and amount with the new lender, and checking that any features such as offset accounts or redraw facilities are set up correctly. You should also confirm that direct debits to your old loan have stopped, since duplicate payments can occasionally occur during the transition if timing overlaps. If you refinanced to consolidate other debts, check those accounts have been paid out and, if appropriate, closed, so you don't end up paying them twice or leaving the credit facility open unnecessarily. Keeping the discharge and settlement paperwork is useful for your records.
Key points
- Comparing costs and features against your existing loan is the starting point
- A valuation confirms your property supports the new loan amount
- Your current lender provides a payout figure to discharge the old loan
- Discharge and new mortgage registration usually happen on the same day
- Confirm old direct debits have stopped and new features are active after settlement
Frequently asked questions
What is a payout figure?
A payout figure is the exact amount, including interest and fees, required to fully repay your existing loan on a specific date.
How long is a payout figure valid?
Usually only a short period, often a matter of days, since interest continues to accrue daily until the loan is repaid.
Do I need a new valuation to refinance?
Most lenders require a valuation as part of the refinance assessment, particularly if you're borrowing against equity.
What are break costs?
Break costs can apply if you refinance out of a fixed rate loan before the fixed term ends, and are calculated by your existing lender.
Does refinancing affect my credit file?
Applying for a new loan is recorded as a credit enquiry, and closing the old loan will also be reflected once it's discharged.