Refinance Before Selling: When to Lock in a Rate

Refinancing when you're about to sell sounds backwards. Most people assume you only refinance when you're staying put for years, but there are specific situations where refinancing before you list makes financial sense, particularly if you're buying another property straight after.

The main reason to refinance before selling is to lock in a rate or product that improves your borrowing position for the next purchase. If you're coming off a fixed rate period and rolling onto a much higher variable rate, or if your current loan has limited features that restrict how you can use equity, refinancing now can save you thousands once you settle on the next property.

When Refinancing Before Selling Actually Works

Refinancing before you sell only makes sense if you're planning to buy again within the next 12 months and your current loan is either costing you more than it should or limiting your options for the next purchase.

Consider a scenario where you're selling a property in Malanda and buying in Atherton or Mareeba. Your current fixed rate expired six months ago, and you've been sitting on a variable rate that's now sitting well above what's available elsewhere. If you wait until after settlement to refinance, you'll be paying that higher rate for another three to six months while the sale completes. Refinancing now means you immediately drop your repayments and, if you're moving the loan across to the new property, you carry that lower rate forward.

The other situation where this works is if your current loan doesn't have an offset account or redraw facility and you're expecting a decent amount of equity from the sale. Refinancing to a loan with an offset account before you sell means the sale proceeds can sit in offset while you're searching for the next property, rather than sitting in a separate savings account where it's taxed.

The Equity Release Question

If you're planning to use equity from your current property to fund the deposit on the next one, refinancing before selling can sometimes speed up the process, but only if the numbers work in your favour.

Lenders calculate equity based on the property's current value, not what you expect to sell it for. If your property is worth more than the outstanding loan amount, you can access some of that equity through refinancing without waiting for settlement. In Malanda, where rural properties can take longer to sell than houses closer to the coast, this can give you the funds you need to secure the next property without waiting months for a buyer.

But the catch is that you'll be carrying two loans temporarily, so your borrowing capacity for the second property will be calculated with both loans in place. For most people, this means refinancing before selling only works if you have enough income to service both loans at the same time, or if the sale is already under contract and close to settlement.

Break Costs and Exit Fees That Change the Calculation

Before you refinance, check whether your current loan has exit fees or break costs that would wipe out any benefit from switching.

If you're still within a fixed rate period, breaking that loan early can cost thousands, depending on how much time is left and how much rates have moved since you locked in. If you're planning to sell within three months, paying a break cost just to save a small amount on repayments doesn't add up. But if your fixed rate has already ended, or if you're on a variable loan with no exit fees, the cost of refinancing is usually just the application and valuation fees for the new loan, which are often offset by the savings within a few months.

Some lenders also charge discharge fees when you close a loan, which you'll pay whether you refinance now or after you sell. Factor that into the calculation so you're comparing the true cost of each option.

Portability vs Refinancing

Some lenders let you port your existing loan to a new property, which means you keep the same rate and terms without refinancing. If your current loan already has a low rate and the features you need, porting can be faster and cheaper than refinancing, but not all lenders offer it and not all loans are portable.

Portability works well if you're moving from one owner-occupied property to another and the loan amount stays roughly the same. If you need to borrow more for the new property, the lender will treat the extra amount as a new loan, which might come with a different rate. If you're moving from an owner-occupied property to an investment property, or the other way around, most lenders won't allow portability because the loan type changes.

In our experience, portability is underused in regional Queensland because people assume refinancing is the only option. If your current lender offers it and your loan suits the new property, it's worth asking before you start a full refinance application.

Timing the Refinance Application

If you've decided refinancing before selling makes sense, the timing of your application matters. Apply too early and the valuation might expire before settlement. Apply too late and you're stuck paying the higher rate for longer.

The ideal window is usually four to six weeks before you plan to list the property, assuming you're confident the sale will happen within three months. That gives you time to complete the refinance application, switch to the new loan, and start saving on repayments before the property goes under contract. If the sale takes longer than expected, you've still locked in the lower rate and you're not worse off than you were before.

If you're already under contract, refinancing becomes harder because some lenders won't refinance a property that's about to be sold. You can still refinance after settlement on the new property, but you'll miss out on the savings in between.

The Loan Health Check Before You Sell

Before you commit to refinancing, it's worth doing a loan health check to see whether your current loan is actually costing you more than it should. In some cases, your existing lender will drop your rate if you ask, which saves you the time and cost of switching.

A loan review looks at your current interest rate, loan features, and repayment structure, then compares it to what's available across the market. If your loan is within 0.2% of the lowest available rate and already has offset and redraw, refinancing might not save you enough to justify the effort. But if you're paying 1% or more above current rates, or if your loan is missing features you'll need for the next property, switching makes sense even if you're selling soon.

Refinancing before you sell isn't the right move for everyone, but if your current loan is holding you back or costing you more than it should, waiting until after settlement just means paying that extra interest for longer. Call one of our team or book an appointment at a time that works for you.

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