If you are planning on selling your house and you have a mortgage, you are probably wondering how you go about discharging your mortgage, and when you need to involve your bank.
It is important to have a clear understanding of your rights and obligations when it comes to selling property and dealing with your lender, so you can plan accordingly, and avoid any unpleasant surprises down the road.
What Happens To My Home Loan When I Sell My House?
Lenders are typically listed on the property title as mortgagee. This means they have a formal interest in the property, and can sell it if you default on your mortgage repayments. Paying out the loan and removing the lender’s interest from the property is known as a mortgage discharge or a release of mortgage.
At settlement, your conveyancer will facilitate the payment of your outstanding mortgage, along with any mortgage discharge fee and other fees payable, and the balance will be paid according to your directions.
That amount will be the purchase price minus the balance of the mortgage, and any other fees and charges owing at settlement.
It is a good idea to ask your lender for a closing statement, or a breakdown of the costs associated with discharging your mortgage. Your conveyancer will also provide you with a settlement statement ahead of the settlement date, so you can see what payments will be made on your behalf.
How To Obtain A Mortgage Discharge
To start the process of releasing your mortgage, you must complete a mortgage discharge form and submit it to your lender.
To avoid a delayed settlement, it is critical that you lodge the mortgage discharge form as early in the process as possible. This is because banks can take a long time (three weeks or more) to process the discharge ahead of settlement.
Where Do I Find The Mortgage Discharge Form?
Each lender has its own mortgage discharge form that is usually available to download on their website. If you can’t find it, contact the lender, or ask your conveyancer for assistance.
How Much Is A Mortgage Discharge Fee?
The bank will charge you a fee to remove the mortgage from your title. Mortgage discharge fees range from $150 to $600.
Once the lender has received and processed the discharge paperwork required to release the mortgage, they will prepare a release of mortgage form. This will lodged by your lender at settlement, providing the new owners with a clear title.
I’ve Paid Off My Mortgage – Do I Still Need A Mortgage Discharge?
Sellers are often surprised to see that there is still a mortgage listed on their property title years after they have finished paying off their home loan.
Most lenders will not formally discharge the mortgage unless you apply to have them do so. This is the case even though there is no liability attaching to the encumbarence on your title, and you will still need to have it removed (including paying the mortgage discharge fee), to allow you to sell the property.
Can I Sell My House And Keep My Existing Mortgage?
Some home loans offer ‘loan portability,’ that is, you can keep your existing home loan and have it transferred to a new property. If you are purchasing a new home, this can save you the hassle and expense of refinancing.
You will need to arrange a substitution of security to transfer the mortgage to your new property. This is something to discuss with your lender and financial advisor.
You should consider, among other things, whether or not your current interest rates are favourable, whether you are on a fixed rate loan, and what fees are involved in obtaining a substitution of security.
If you plan to make a substantial extra payment on your mortgage at settlement, you should also be mindful of break costs.
When considering how to finance the purchase of a new home, it is important that you obtain financial advice.
What If The Purchase Price Is Less Than The Amount Owing On The Home Loan?
Australia’s property market has seen a lot of growth in recent years, but it is important to remember that house prices can fall too. When the value of your home falls below the amount owing on your home loan, this is known as having ‘negative equity.’
The bank is entitled to recover the entire amount owing to them. If you sell your property, and the proceeds are less than the outstanding balance on your loan, the amount left over is known as a ‘shortfall debt.’ Your lender will seek to recover this amount from you, or from their mortgage insurer, who will in turn recover it from you.
If you are considering selling your property and have questions about securing a mortgage discharge or any other aspect of conveyancing in Queensland, give one of our friendly, experienced conveyancing solicitors a call today.
The above is not legal or financial advice, and is general information only.