Refinancing a private loan to another private lender: how it works and what it costs

Most people take out a private loan planning to repay it with a sale or a bank refinance, and most of the time that's exactly what happens. But plans move, so a reasonable number of the scenarios we see are borrowers who already have a private loan and need to move it to a different private lender, usually because the term is running out and the exit isn't quite ready yet.

There's nothing unusual about it, and a good private lender expects some of its loans to be refinanced by someone else. What matters is understanding why you're moving, what it costs on both sides, and starting early enough that you're choosing the timing rather than having it chosen for you.

Why borrowers move a private loan

• The term is ending and the exit needs more time. The sale is taking longer than expected, the bank wants a few more months of clean conduct, or a development approval is still with council.
• The current lender won't extend, or will only extend on terms that don't work. Lenders' appetites change, and a loan that suited a fund 12 months ago might not suit it today. We cover this in more detail in what to do when your private loan is expiring and the lender won't extend.
• You need more money than the current facility allows. The property has gone up in value, or you need to fund the next stage of the plan, and the current lender can't or won't increase the loan.
• You've got more than one lender on the title. A first mortgage, a second mortgage and a caveat loan can sometimes be combined into one facility, which we explain in consolidating a caveat loan or second mortgage.
• The loan has already gone past maturity. Refinancing out of a loan in default is possible, but it changes the numbers, so we've written about it separately in refinancing a private loan that's already in default.

When a refinance isn't the right answer

A refinance isn't free, and sometimes the cheapest option is staying where you are. If your current lender will extend for a fee and the exit really is a couple of months away, an extension is often cheaper than paying a new set of establishment costs, a new valuation and two sets of legal fees. It's worth asking for an extension in writing before you go elsewhere, so you're comparing actual numbers.

A refinance usually makes sense when the extension isn't offered, when the extension terms are expensive enough that a new loan costs less over the remaining period, or when you need something the current lender can't provide, like more money, a longer term or a different interest structure.

What it costs

There are costs on the way out of the old loan and costs on the way into the new one, and you need both to work out whether moving is worth it.

Leaving your current lender

• Interest up to the payout date, including any minimum term that hasn't run yet
• Any early repayment or exit fee in the loan agreement
• A discharge fee and the lender's legal costs to prepare the discharge
• Default interest and enforcement costs, if the loan has gone past maturity or a default notice has been issued
• Any unused prepaid interest, which may be credited back to you or may not, depending on the loan terms

Joining the new lender

• An establishment fee
• A new valuation, because a valuation addressed to your current lender usually can't be relied on by anyone else
• The new lender's legal costs, plus your own solicitor
• Interest for the new term, whether it's prepaid, capitalised or paid monthly (we explain the three options in bridging a bank refinance)

The new loan has to be big enough to pay out the old loan in full, plus all of the costs above, and still sit within the new lender's loan-to-value limit. That's the number that decides whether the refinance works.

How the refinance actually happens

1. Ask your current lender for a payout figure. Get it in writing, with a daily rate for interest after that date, so you know what the new loan needs to cover.
2. Send the scenario to the new lender. The property, the payout figure, the amount you need on top (if any), the purpose and the exit. A lender should be able to give you indicative terms within a day or two without a valuation.
3. Accept the terms and instruct the valuation. Once the valuation is in and supports the loan, the new lender issues formal documents.
4. Sign the discharge authority. Your current lender needs written authority to prepare the discharge, and most loan agreements require some notice, so check yours and give it early.
5. Settle. On the settlement day the new lender pays out the old loan, the old mortgage is discharged and the new mortgage is registered, usually electronically on PEXA, all at the same time.

Once the valuation is in, a refinance between two private lenders can settle in about one to two weeks. The parts that slow things down are almost always a late payout figure, a slow discharge from the outgoing lender, or a valuation that comes in lower than expected.

What the new lender will want to see

A private lender refinancing another private lender's loan looks at the same things it looks at on any loan, which are the property, the loan-to-value ratio, the purpose and the exit. We set this out in how a private lender decides whether to approve a property loan. The one extra question on a refinance is why the loan is moving, and the answer doesn't need to be perfect, but it does need to be clear. "The sale is taking longer and the current lender's fund is winding down" is a perfectly good answer. Having the existing loan documents and the conduct history ready makes the whole thing faster.

Refinancing from a specific lender

The process is the same whoever you're with now, but the things worth checking in your loan agreement vary. We've written separately about moving a loan from a few of the lenders we're asked about most often.

• Refinancing an AMF loan
• Refinancing a Prime Capital loan
• Refinancing an Msquared Capital loan
• Refinancing a Woodbridge construction loan into a residual stock loan

How we do it

Vía Private lends $1M to $20M on first mortgages and $500K to $7.5M on second mortgages, for business and investment purposes, to companies and trusts, secured by property on the East Coast. Terms run from 6 to 36 months, and we tell you the total interest, every fee and the exact payout at the end before you sign, so you can compare it properly against an extension with your current lender.

If your private loan is coming up for renewal, send us the scenario with the payout figure and the exit, and we'll tell you quickly whether a refinance works.

Vía Private is an Australian non-bank private credit lender providing property-secured commercial loans to companies and trusts for business and investment purposes. All lending is subject to credit approval and valuation. General information only, not financial or credit advice.