November 23, 2020
There’s nothing more exciting than repaying your mortgage in full, but an often-overlooked step in the homeowner journey is to register the discharge of a mortgage on your property. If you have a home loan, it’s likely that one day you will need to organise a discharge of mortgage.
Whatever your reason for discharging your mortgage, avoid any unnecessary pitfalls that could come your way if you’re not prepared with the know-how. Read on to find out what exactly a discharge of mortgage is, what the process entails, and when you may need to apply for one.
A discharge of mortgage is the process you take when you remove your lenders security interest over your property. While you’re still paying off your mortgage, the bank registers a mortgage interest and holds the Certificate of Title on your property. Once you’ve paid off the home loan completely, you can go ahead with the process of discharging your mortgage in order to clear the bank or lender from the properties title.
If you’re looking to refinance your home loan or want to sell your property, it’s important you follow the right process when discharging your mortgage, otherwise, you may experience unwanted delays or extra costs. Your new lender, conveyancer or solicitor would normally complete this process for you, but make sure to ask about this process.
When your mortgage is paid in full you should consider removing the bank security interest from your title unless your intent reborrowing from that lender using the same security property. However, there are a range of other situations that may lead to you wanting to discharge your mortgage.
Here are four reasons why you may need to discharge you home loan:
When you’re selling your house, it’s important to discharge your mortgage in a timely manner. The sale should be sufficient to repay the outstanding debt. If you sell the property for less than the outstanding payout you’ll need to contribute towards the shortfall.
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Releasing a mortgage is not as complicated as it may sound. Your lender or solicitor will complete the process on your behalf.
Here’s your three-step simple process to discharging your mortgage:
In each state and territory, there is a central register of all the land in the state, and this shows who holds ownership of the land. This is the official record and includes information about mortgages, caveats, covenants and easements.
Here are the land registry websites for each state, where you can find your Land Titles office along with important information about fees, required documents and more:
When you have more than one property secured by a loan, a partial discharge can be used to release one of the properties as equity so that you don’t have to repay the full loan upon settlement.
A partial discharge often takes a lot longer to process than a typical mortgage discharge (roughly four weeks) as the bank can require a valuation of the other properties. This can cause settlement delays and you may incur penalty interest. There is usually extra documentation to provide too. Getting the paperwork in quickly is often key to a smoother application for partial discharge.
When you’re looking to buy and sell at the same time, applying for substitution of security is a common process. Sometimes referred to as loan portability, the substitution of security is when you keep your existing loan open and transfer that security to your new property.
If you decide to substitute your security by replacing your old property with your new home on the same loan, you will need the following documentation:
In the case that you’re refinancing with another lender or paying off part of your loan, you will need these documents:
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You may have heard it takes 10-14 business days to complete a discharge process. However, discharges are becoming much more popular nowadays as more people tend to refinance their home loans.
You can expect the process to take anywhere between 14 and 21 days to complete.
The average cost of a mortgage discharge is $160, but they cost as much as $600. The costs are generally determined by the reasons why you’re discharging your loan. If you have a fixed loan and break it by refinancing, you could have to pay fixed break fees or penalty interest on top of the discharge fee.
Additionally, registering your Certificate of Title and Discharge of Mortgage can also incur other fees, depending on the state or territory you live in.
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It’s best practice to be on top of your mortgage discharge as soon as possible to avoid potential future issues. In some cases, however, it can be advantageous to keep your mortgage open.
When you have a loan that has a redraw facility and you need to access those funds for other expenses such as investments or renovation projects, keeping your mortgage open can prove fruitful. In this case, you will not need to take out any other new loans to facilitate these costs as you can simply continue to use your existing loan. Speak to your financial advisor or lender to ensure this is a good option for you.
Words by Katy Holliday
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Written by Refinancing.com.au
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