This article is for general information purposes only and reflects the state of information at the time of publication. It is not legal or financial advice. Always seek professional advice tailored to your specific circumstances before making decisions.
Most Australians sell their homes without fully paying off their mortgages. Understanding what happens to your home loan when you sell your property is essential for a smooth transaction. Here’s everything you need to know.
What Is a Mortgage and How Does It Work?
When you took out your home loan, your lender registered a mortgage on the property title. This legal interest gives the lender rights over the property, such as recovering their funds through a sale if you default on repayments. If you sell a property with an active mortgage, the lender’s legal interest must be cleared before the property can transfer to the buyer. This process, known as a discharge of mortgage, is a key step in the settlement process.
Why Is Discharging a Mortgage Important?
When you sell a property, the buyer requires a clear title free of any claims or interests. To ensure this, your mortgage must be discharged on or before settlement day. The discharge process allows the lender to recover the outstanding balance of the loan and formally remove their legal interest from the property title. Without completing this step, the property sale cannot be finalised.
How to Arrange a Mortgage Discharge
The discharge process can take time, sometimes up to three weeks, so it’s essential to start early. Once you have a settlement date, notify your lender of your intention to sell. This involves submitting a discharge of mortgage application. Your lender will work with your conveyancer to prepare the necessary documents and ensure they are ready for settlement. On the day of settlement, your lender will receive the outstanding balance of the loan, and they will lodge a discharge of mortgage with the land titles office, formally releasing their interest in the property.
What Fees Are Associated with Discharging a Mortgage?
Discharging a mortgage often incurs fees, which vary depending on the terms of your loan. These may include early payout penalties for repaying the loan before the end of its term, break costs for fixed-rate loans, or discharge fees set by the lender. If the sale price of the property does not cover the full loan balance, you will need to contribute additional funds to complete the discharge.
What Happens to the Remaining Sale Proceeds?
Once the mortgage is discharged, your conveyancer will ensure all outstanding rates, utilities, and other costs, such as real estate agent commissions, are settled. If you are not immediately buying another property, the remaining funds from the sale will typically be deposited into your nominated bank account. However, if you are purchasing a new property, the proceeds from the sale will be directed toward that purchase. Any shortfall in funds can be covered through additional savings or a new mortgage.
Can You Transfer Your Mortgage to a New Property?
If you’re buying a new property, some lenders offer the option of substituting security, also known as loan portability. This allows you to transfer your existing mortgage to the new property, maintaining your current loan terms and interest rate. Depending on the property values, you may need to adjust your loan amount or contribute additional funds. This option can save time and money, and it’s worth discussing with your lender or mortgage broker to determine if it’s suitable for you.
How Can Professional Guidance Help?
The financial and legal complexities of selling and buying property can feel overwhelming. With the support of an experienced conveyancer, alongside other professionals such as an accountant, solicitor, and mortgage broker, you’ll have the expertise needed to make informed decisions and protect your financial interests.
At Bliss Conveyancing, we’re here to guide you through every step of the process. Whether you’re selling, buying, or exploring mortgage options, our team is ready to provide expert advice and ensure your property journey is seamless.
- 📞 Contact us today on 1300 659 231
- 👩🏻💻 Email us at info@blissconveyancing.com.au
- 💻 Visit www.blissconveyancing.com.au
