When selling property, an existing home loan doesn’t simply take care of itself. If this applies to you, then learning how to discharge your mortgage is a must.
Selling your home can be exciting, stressful and scary – often all at once. Between enlisting the help of a real estate agent, patching up any outstanding repair work, making sure the property is spick and span for marketing photos, dealing with an existing home loan is usually the last thing on the mind of a seller.
When you take out a home loan, your lender places a mortgage on your property tied to your name. This information appears on the property title, and means that the bank has a formal interest in the home or property. In the event that you’re unable to meet your repayments, the mortgage means that the bank can actually sell your property in order to recoup the costs and funds lent to you.
However, when you sell and eventually no longer own the property, the lender also loses its right to sell it. In exchange for this, they expect to be repaid the money they’ve lent you, which is why learning how to discharge your mortgage is non-negotiable.
Understanding How A Mortgage Discharge Works
While the process of discharging your mortgage usually happens before the arranged settlement date with the new owners, one major factor to consider is that your submission is not often a high priority for a lending institute.
As you’re deemed to be a departing business partner as opposed to an incoming new one, the banks have no incentive to discharge your mortgage quickly – especially considering that the longer it takes, the more interest they have to gain from the loan. In turn, make sure that you allow at least two to four weeks for the application process.
The silver lining is that the process itself is actually quite simple. Depending on your lending institute, all you need to do is complete the designated discharge authority form, present it directly to your bank or solicitor, and wait. Once the final payout figure is calculated and the remainder of your mortgage is reissued back to the bank, the contract is finalised and your property can be sold and passed on to the new owners.
However, be sure to calculate the extra costs associated with the process, such as the mortgage discharge fee and break costs if you happen to have a fixed interest rate loan. These are usually deducted from the proceeds of the sale, and range anywhere from a free service to around $550. Be sure to factor these expenses into the other standard costs of selling a home, such as stamp duty, real estate agent fees, conveyancer or solicitor fees, and any other charges your lending institute may have in place as well.
If you want to stick to the same lending institute for your next property purchase, it’s smart to apply for the new home loan when you lodge the discharge form as a means to avoid any potential finance headaches further down the track. Doing this at the same time helps to streamline the process, and makes it easier and less stressful for both you and the lender.
If you have a substantial amount of equity in your home and a solid and stable income, buying first could be an appropriate move. This way, the lender will take security over both your existing and new homes, so you’ll have to be in a position to make repayments on the cumulative loan balance. Either way, in most scenarios your choice of legal representation will guide you on the process of discharging your mortgage and what the best approach should be based on your individual scenario.
Should you be looking to sell your home or purchase a new one, enlisting the services of a free property advisor like ESPA can often be a game changer. As an example, your advisor would likely research the property, local agents, check the zoning, evaluate market conditions, and communicate clearly with you regarding all of your options – but where do you find one?
Take The Stress Out Of Selling Property
As a completely free service, Emergency Services Property Advisors provide property advisor services to Police, Fire, Ambulance and S.E.S personnel and their families right across Victoria.
Luke and the team at ESPA are passionate about providing support to some of Australia’s most valued public servants. Along with key industry insights, ESPA also works with a broad range of service providers linked to the real estate industry such as conveyancers, trades, legal practitioners and mortgage brokers.
If you are an emergency services worker looking to potentially buy or sell property in the future, please get in touch with Emergency Services Property Advisors today to discuss how we can turn your real estate dreams into reality, or call Luke directly on 0414 757 705.