While you probably didn’t think about having to deal with a mortgage discharge when you took out your home loan, you’ll need to go through this process at some point. Find out what a mortgage discharge is, when you need one, and how to navigate the process. Knowing the ins and outs of discharging your home loan could save you money, as well as the hassle and stress of walking into the process uninformed.
When you take out a home loan to buy a property, you don’t yet own the title for the property. Your lender does. Until your loan is paid off in full or the loan itself changes hands, they hold the Certificate of Title.
But, what about when you need to sell the home, you’re switching loans, or, you’ve paid it off? Your lender, of course, doesn’t need to hold onto the Title.
You need to make sure you get a mortgage discharge to release your lender from the mortgage obligation – and from possession of the Title. If you fail to register the discharge of mortgage and collect your Certificate of Title once you pay off your loan, tracking down your lender to get all the paperwork done correctly retroactively can become expensive.
For example, consider the case where the homeowners didn’t realise they needed to take this step until over a decade had passed. They had paid off their mortgage but they didn’t collect the Title or register the mortgage discharge. The lender had changed ownership over the years and they had to go through numerous legal hoops to find and retrieve the Title, at a significantly greater cost than if they had not delayed.
When ownership of the mortgage is changing hands, you’ll need to go through the discharging process. So, this means you’ll need to discharge when:
You refinance your mortgage. When you refinance, you are changing lenders or, if you are staying with the same lender, you are at least changing loans. This means you’ll still need a formal discharge to get out of one loan facility and switch to another.
You sell your home. Whether you are moving for a new job or into a bigger house, chances are, you’ll move before you pay off your mortgage. Most Australians move house within 14 years of moving in. In this case, your mortgage will be listed on the Title as an encumbrance. You then have two options. You can apply for a substitution of security if you want to keep your home loan for your new property. Or, you’ll have to discharge the mortgage before the sale can be settled.
You’ve paid off your mortgage. When the loan is paid off, you have to register for a discharge of mortgage and register the Certificate of Title. Your lender may or may not do this step for you.
You paid off one part of a split home loan. When you have a split home loan – with one portion paid down at a fixed rate and the other at a variable rate – when you pay off one part of the loan, you’ll need a formal discharge for the paid-off segment.
Wondering how to discharge your home loan? You’ll want to take care of this process right away to help speed up the process, especially if you are trying to refinance quickly or want to sell your home quickly.
First, you need to talk to your lender. Let them know you need to discharge your mortgage and why. They’ll ask you to complete a discharge authority form to start the process. You may want to ask about any discharge fees at this point.
Second, you’ll need to access the discharge authority forms. You can call your bank and ask them to send you the forms or download them from your lender’s website.
Once you have the forms, you can complete them and return them to your lender. It will take your lender a good ten business days to process your request, so turn your form in as soon as you can. You don’t want something as simple as your mortgage discharge to slow down your refinancing or your home’s sale.
If you are discharging your mortgage because the loan is paid off, you need to take another step. In some cases, your lender will do this for you so be sure to ask. If they aren’t doing it on your behalf, you’ll need to do it – register the Discharge of Mortgage and Certificate of Title with the Land Titles office for your state. Each state has its own fees, which you’ll have to pay if you are registering on your own behalf.
In most cases, it’s better to take care of your mortgage discharge right away so you don’t run into problems in the future. However, there is one reason to hold your mortgage open. If you have a loan with a redraw facility and you want to access funds to cover other costs, such as a renovation or investment, you may be better off keeping your mortgage open. This way, you can just use the loan you already have rather than having to take out a new loan. You can discuss this option with your lender or a financial advisor to make sure it’s a smart move for you.
Otherwise, go ahead and take care of your discharge so it is one less thing you have to worry about. Once your paperwork is registered and your fees are paid, you can move on to your next loan, your next home, or to being the proud owner of your property’s Title.
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