Written byEarly settlement is paying a loan or lease out in full before the end of its term using the lender's payout figure, or bringing a property settlement date forward.
Also known as: early payout, paying out a loan early, accelerated settlement, early completion
Key points
- The lender quotes a payout figure covering the balance owing, interest to the payout date and any fees, and it expires quickly.
- On fixed rate finance, paying out early can bring break costs, and a termination fee may apply as well.
- People pay out early when they sell the asset, refinance elsewhere, or simply want the debt gone.
- In property, early settlement means something else: a written variation that brings the settlement date forward, which every party has to agree to.
- If the property is mortgaged the lender must consent, and the seller's mortgagee reissues its payout figure to the new date.
Paying a loan out early
On a loan or lease, early settlement means clearing the debt in full before the last scheduled repayment. You ask the lender for a payout figure: the balance owing, interest up to the date you nominate, and any fees the contract allows. That figure is only good until that date, so if you settle later it has to be requoted.
What it costs depends on the contract. Fixed rate finance can carry break costs, which move with the market, and some contracts add a termination or discharge fee. A balloon payment or residual still has to be covered in the payout. Businesses usually pay out early when they sell the asset, refinance, or want the security interest released so the item can be sold clear.
Early settlement of a property sale
The other sense of the term belongs to conveyancing. Bringing settlement forward is a contract variation, so buyer and seller have to agree in writing, through their conveyancers and recorded in a deed of variation or signed correspondence. If the title is mortgaged, the mortgage holder must consent as well, and the seller's lender reissues its payout figure to the new date. Banks have daily cut-offs, so a request close to one can be refused.
When the date moves, the settlement statement is recalculated: council rates, strata levies and water are apportioned to the new date, and lenders may charge for the reissue or for changing settlement instructions. Title problems, an unreleased deposit or tenants still in the property can stop the change. If a party will not agree, the date stands. Where a party then fails to complete on the agreed date, the other side's remedies are damages or specific performance.
Example
A couple buying a townhouse ask to settle a week early because the lease on their rental ends. Their conveyancer obtains the seller's written agreement, and both lenders confirm in writing that the loan funds and the seller's payout will be ready on the new date. The seller's bank reissues its payout figure to the earlier date, rates and water are adjusted, and the buyers do the final inspection that morning. Keys change hands a week earlier than contracted, and the only extra cost is the lender's fee for changing the settlement instructions.
Not to be confused with
- Payout
- a payout is the figure that closes the loan, whereas early settlement is paying it before the end of the term
- Settlement
- settlement is the completion of a purchase on the contracted date, whereas early settlement can also mean bringing that date forward by written variation
Frequently asked questions
How do I settle a loan early?
Ask the lender for a payout figure and nominate the date you want to settle. It covers the balance owing, interest to that date and any fees or break costs, and it holds only until that date. Once it is paid, the lender discharges its security over the asset.
Can a buyer insist on early settlement?
No. A settlement date is a contract term, so changing it needs the seller's written consent and usually the consent of any lender with a mortgage over the property. A buyer who tries to settle early without that agreement is not entitled to complete, and the attempt can amount to a breach of contract.
Does the lender have to agree to early settlement?
Not always. Lenders have internal cut-off times, valuation and documentation requirements, and they need to confirm that funds or payout figures will be available on the new date. If the property is mortgaged you cannot complete without the mortgagee's consent, so get written lender confirmation before committing to a new date.
What does early settlement cost?
On a loan or lease, the main costs are break costs on fixed rate finance and any termination or discharge fee, all built into the payout figure. In a property sale, the extras are lender charges for changing settlement instructions or reissuing a payout figure, plus urgent conveyancing costs. Rates, levies and water are apportioned to the new date rather than added.
What happens if the seller cannot vacate on the new date?
If vacant possession is a condition of the contract, failing to vacate on the agreed new date can be a breach. The usual remedies are a negotiated extension, compensation for the buyer's losses, or in serious cases court action. This is one reason to confirm tenant and moving arrangements before agreeing to move the date.
Related terms
Payout
A payout is the total amount needed to close a loan or lease on a given date: the balance owing, accrued interest and any break costs or fees.
Read definitionBreak costs
Break costs are the charges a lender passes on when a fixed rate loan is repaid or changed before the fixed term ends.
Read definitionRefinancing
Refinancing is replacing an existing loan with a new one, from the same or a different lender, to change the interest rate, term or features, or to release equity.
Read definitionSettlement
Settlement is the final stage of a finance deal, where the lender releases funds, security is registered and you take delivery of the asset.
Read definitionMortgage
A mortgage is the legal charge a lender registers over property to secure a loan, giving it the right to sell the property if you default.
Read definitionBridging loan
A bridging loan is short-term finance secured by a mortgage over property, covering the gap when you buy a new property before the sale of your existing one settles.
Read definitionGo deeper
Sources
This article is general information only and is not financial advice.