What Happens to your Mortgage When You Sell Your House?

If you’re thinking about selling up and moving on, but not quite sure what happens to your mortgage when you sell your house and buy another, allow us to give you some pointers and clarify a few things.

According to the Australian Bureau of Statistics’ Survey of Income and Housing, which was conducted from July 2017 to June 2018*, there are more people in Australia with mortgages than there are people that own their homes outright. The survey found that 37% of households own a home with a mortgage and 30% of households own a home without a mortgage.

So if you have a mortgage and are looking to sell, you’re not alone. So, how does selling a house you haven’t paid off work?

Can you sell your house before paying off a mortgage?

The short answer is yes. When you sell a house that has a mortgage attached, you are required to fill out a discharge of mortgage form and provide it to your lender. This notifies your lender that the mortgage is going to be discharged and that the remaining balance of your home loan is going to be repaid. Once this process is complete, your lender will no longer hold the Certificate of Title to your property. Discharge requests usually take two to three weeks to process, but this timeline can blow out to more than 30 days, so it is important to lodge your discharge of mortgage form as early in the settlement process as possible, to ensure that everything is organised by settlement day.

Once the form has been lodged, your lender will liaise with your conveyancer or solicitor and arrange for any funds owed to them to be paid from the proceeds of sale at settlement.

Costs and fees

There are often fees associated with discharging a mortgage. Your lender may charge a fee to process the discharge request, and if you have a fixed rate home loan, you may have to pay a break fee. Selling a house also often involves paying a fee to your conveyancer or solicitor and real estate agent. You will also be required to pay any outstanding pro-rata council rates or utilities fees.

What happens to your mortgage when you refinance?

Your mortgage must also be formally discharged when you refinance and open a new home loan facility. If you decide to change home loans, you need to discharge your mortgage to legally release your current lender from mortgage obligations. Your mortgage broker can assist with this process.

Can you transfer your mortgage across to a new property?

If you are planning on purchasing a new house, you may be able to transfer your existing mortgage across to your new property, rather than paying out your home loan in full, going through the discharge process, and opening a new one. Some people choose to do this because their fixed rate home loan break costs are too expensive, or their borrowing capacity might not allow them to access a new home loan of the same size due to a change in income, issues with employment, or affordability.

To port your mortgage, you will need to satisfy any requirements set out by your lender, such as aligning the settlement dates of your property sale and property purchase. However, generally speaking, you will be able to keep the features of your existing home loan, such as the interest rate, any associated terms and conditions, and its balance. Depending on the price of your new home, you may need to increase the size of your loan or contribute additional funds. Alternatively, if you are downsizing or your new property is less expensive than your existing one, you may receive some of the proceeds of sale, or significantly reduce your home loan balance. The process of porting your mortgage will differ depending on the lender, and it is important to remember that staying with the same lender and loan product might not necessarily be the best option. There might be a home loan product out there with a more competitive rate, or that better suits your needs. It is always wise to consider whether the benefits associated with a new loan product outweigh the adverse consequences of switching loans during a fixed rate period.

If you are thinking about selling your home but are unsure as to whether you should discharge your current mortgage, transfer it across to a new property, or look for a new home loan, chat to your local MoneyQuest mortgage broker. They can guide you through your options and help you to make the right decision for your specific situation.

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