Selling Your House with a Mortgage: Understanding the Mortgage Discharge Process
Selling a house can be a complicated process, especially if you have a mortgage. If you want to sell your house but have a mortgage, it’s important to understand the process of discharging your mortgage and involving your lender. At settlement, your conveyancer will facilitate the payment of your outstanding mortgage, along with any fees payable, and the balance will be paid according to your directions. To obtain a mortgage discharge, you must complete a mortgage discharge form and submit it to your lender. Mortgage discharge fees range from $150 to $600. Even if you’ve paid off your mortgage, you still need a mortgage discharge to remove the mortgage from your title, including paying the fee. Some home loans offer ‘loan portability’ which allows you to keep your existing home loan and transfer it to a new property. If the purchase price is less than the amount owing on your home loan, the bank is entitled to recover the entire amount owing, and the amount left over is known as a ‘shortfall debt.’
If you want to sell your house but have a mortgage, here’s what you need to know:
How to Discharge Your Mortgage
To discharge your mortgage, you need to complete a mortgage discharge form and submit it to your lender. The form requires information about your mortgage, including your account number, property address, and the amount owing on your loan. You will also need to provide your contact details and sign the form.
Once your lender receives your mortgage discharge form, they will prepare a discharge of mortgage document, which confirms that the mortgage has been paid in full and provides details of the property and the mortgage. Your lender will then send the discharge of mortgage document to your conveyancer or settlement agent, who will attend settlement on your behalf.
At settlement, your conveyancer will facilitate the payment of your outstanding mortgage, along with any fees payable, and the balance will be paid according to your directions. The mortgage discharge fee is typically paid from the proceeds of the sale, and the balance is paid to you.
Loan Portability: Keeping Your Existing Home Loan
If you want to sell your house but still need a home loan, you may be able to keep your existing home loan and transfer it to a new property. This is known as ‘loan portability.’ Not all home loans offer loan portability, so it’s important to check with your lender or mortgage broker to see if this option is available to you.
If you’re eligible for loan portability, you will need to apply for a new loan for your new property, and your lender will transfer your existing loan to the new property. You may need to pay a fee for this service, and your interest rate and loan terms may change.
Loan portability can be a convenient option if you have a good interest rate and don’t want to go through the process of applying for a new loan. However, it’s important to consider the costs and benefits of loan portability, as you may be able to get a better deal by shopping around for a new loan.
Shortfall Debt: Dealing with a Mortgage Deficit
If the purchase price of your property is less than the amount owing on your home loan, the bank is entitled to recover the entire amount owing, and the amount left over is known as a ‘short debt.’ This is a common scenario when property values decrease or the market conditions change, leaving homeowners with a mortgage deficit.
If you find yourself in this situation, there are a few things you can do to deal with the shortfall debt:
1. Negotiate with your lender: Your lender may be willing to negotiate a payment plan or reduce the amount owing. It’s worth speaking to them to see what options are available.
2. Sell your property: If you can’t negotiate with your lender, your only option may be to sell your property to repay the mortgage. You will need to discuss the sale with your lender and ensure that the proceeds are used to pay off the mortgage debt.
3. Consider a debt agreement: If you are struggling to make payments on the shortfall debt, you may want to consider a debt agreement. This is a legally binding agreement between you and your creditors to repay the debt over a set period.
It’s important to act quickly if you find yourself in a mortgage deficit situation. Ignoring the problem will only make it worse, and you could end up losing your property.
FAQs:
Q: Do I need to pay a mortgage discharge fee if I have paid off my mortgage? A: Yes, even if you have paid off your mortgage, you still need to obtain a mortgage discharge to remove the mortgage from your title, and you will need to pay the fee.
Q: Can I keep my existing home loan if I buy a new property? A: Some home loans offer ‘loan portability,’ which allows you to transfer your existing home loan to a new property. You will need to discuss this option with your lender.
Q: What is a shortfall debt? A: A shortfall debt is the amount owed on your home loan that is not covered by the sale of your property. This can happen when the purchase price of your property is less than the amount owing on your home loan.Do
Q. I have to disclose a mortgage on a contract of sale in QLD?
A. Yes, as a seller, you must disclose any mortgages or other encumbrances on the property in the contract of sale in Queensland.
Q. Are all mortgages the same in Australia or do they differ from state to state?
A. Mortgages are generally similar across Australia, but there may be some differences in the specific laws and regulations that govern them in each state or territory.
Q. Does the lender or bank need to see a contract of sale?
A. No, the lender or bank does not need to see a contract of sale, but they may ask for a copy to verify the sale price and other details.
Q. Can my real estate agent or solicitor sign the mortgage discharge on my behalf?
A. No, only the mortgagor can sign the mortgage discharge. However, your solicitor can assist you with the process.
Q.Is there any cost associated with breaking my mortgage terms?
A. Yes, there may be costs associated with breaking your mortgage terms, such as prepayment penalties or fees. These will vary depending on the terms of your mortgage agreement.
Q. Is a mortgage a contract?
A. Yes, a mortgage is a legal contract between a borrower and a lender, outlining the terms of the loan and the borrower’s obligation to repay the debt.
Selling a property with a mortgage can be a complicated process, but understanding the steps involved in discharging your mortgage and involving your lender is crucial. You will need to obtain a mortgage discharge, pay the fee, and potentially deal with a shortfall debt if the sale price is less than the amount owing on your home loan. If you find yourself in this situation, it’s important to act quickly and discuss your options with your lender. By taking proactive steps, you can ensure that the sale of your property goes smoothly, and you can move on to your next adventure.
This is general advice only, for specific legal advice contract an expert legal representative or for financial advice contact contact an experienced financial advisor.
