What happens on home loan settlement day when you refinance?

The process of home loan settlement is the final hurdle every homeowner must overcome before they can truly call a property theirs. If you’ve decided to refinance your mortgage, you will need to go through the full home loan process again, including settlement. 

Home loan settlement is the process in which your lender receives the title deeds to your home, and the debt with your previous lender is paid in full. It is the final step in refinancing your mortgage and is typically between 30 and 90 days. After this point, you will begin a ‘new’ loan with the lender you are refinancing to. 

Settlement is a crucial step in the home loan process, as it provides you with enough breathing space to ensure you are satisfied with the terms of the new loan. Let’s explore what homeowners need to know about the refinancing process before, during and after settlement. 

What to do before settlement day

If you’re still considering refinancing, it’s worth getting all your ducks in a row now to ensure the settlement process is as smooth as possible. This includes:

• Gathering your personal information so that everything you need is in front of you when you submit your application. This can help to ensure the process is as quick as possible.
• Checking that your credit score is as healthy as it was when you first applied for your loan. Anything can happen in a few years of repaying a mortgage, and having a credit score in the categories ‘very good’ or ‘excellent’ may mean you are more likely to gain approval for your new loan. 
• Checking your current loan terms and conditions and get across any fees you may be charged for refinancing, such as a break fee if you’re leaving a fixed rate period early. 
• Considering valuation and avoid negative equity. When you refinance the new lender will likely value your home in its current state. However, if you’ve only been repaying your mortgage for one or two years, and property prices have dropped in your area, you could be at risk of negative equity. This is where your current property value is less than your mortgage owing - and will likely prevent you from being able to refinance. 

What happens on settlement day when you refinance

Once you have received full approval for your new mortgage, there are a few key actions that should take place in the settlement process when you refinance. 

Firstly, your new lender will communicate with your old lender and facilitate paying out your current mortgage debt. Unlike your first settlement day, there is no exchanging of titles or any additional hoops to jump through at this time.

If you have involved a conveyancer or solicitor in this process, they may oversee this exchanging of funds and documents between lenders to ensure that everything has been processed correctly. 

Next, you will be discharged from your previous home loan, and finally registered for your new mortgage. You may receive communication from the new lender at this point as to when your first mortgage repayment will be due. 

What to expect after settlement day

After settlement day, the new loan will become active and you will commence making your new repayments according to the terms of the loan. You may want to double check that loan factors like the interest rate and repayment frequency match, and address any issues with the lender - if they come up.  

Refinancing your mortgage can offer a range of benefits to homeowners, such as nabbing a lower interest rate or cashback deal, paying fewer fees or gaining access to helpful features. While there are costs associated with this process, the savings you may gain from refinancing are expected to pay these back over a few months. 

Calculate how much you could save by refinancing your mortgage today using RateCity’s Refinance Calculator. 

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