Understand the process of discharging your mortgage

What is a discharge of mortgage?

Discharging a mortgage is the process of removing the home loan from the title of the property. When you take out a home loan, the lender is added to the property's title until you've repaid the mortgage in full.

When do you have to discharge a mortgage?

There are a few times in your home-owning life that you could go through a discharge of mortgage.

When selling your home

If you're selling your property, you need to process a discharge of mortgage for the settlement to proceed. The mortgage appears on the title as an encumbrance and needs to be removed.  

If you want to carry your mortgage over to a new property, you can do this by obtaining a substitution of security. This will move the mortgage from the property you're selling and put it on your new property's title.

When refinancing your home loan

When you switch home loans, you'll need to discharge your home loan from your old lender in order to move it to your new lender. This process removes your old mortgage from your title and adds the new mortgage in its place.

When removing a guarantor from your mortgage

If you've used a guarantor to get your mortgage, but you want to remove them, you'll need a discharge of mortgage via the process of refinancing your home loan. A discharge will be processed as you switch home loans, remove the guarantor and take sole responsibility for your mortgage.

When repaying your home loan in full

Once you're ready to repay your home loan in full, you'll also have to formally discharge your mortgage. This process will remove your mortgage as an encumbrance from the property title.

When might you not want to discharge a mortgage?

There are also some reasons not to discharge your mortgage. The scenario where you may not want to discharge your home loan is:

You have paid your mortgage in full and have some funds sitting in the loan account that you can access via the redraw facility. You may want to hold off discharging your mortgage to maintain access to these funds for renovations or similar expenses. By not discharging your mortgage you’ll also save on fees if you want to draw on the equity in the property in the future.

How do you discharge your mortgage?

The process of discharging your mortgage is pretty straightforward, with just a few steps involved.

Let your lender know

First, you need to let your lender know that you wish to discharge your mortgage. Your lender will supply you with the relevant paperwork to help process the discharge.

Fill out and return all formal paperwork

Your existing lender will provide you with a discharge authority form. When filling out this paperwork, you'll be asked for:

• Details of all borrowers named on the mortgage.
• Details of the property and the loan account number.
• Details of the people involved in the discharge that aren't borrowers, such as your solicitor, conveyancer, mortgage broker and both lenders (if applicable).
• Bank account details for the deposit of any excess funds or refund of any fees or charges if you're due any.

You may want to speak with your new lender to help you fill out this paperwork. 

If you're selling, ensure that you submit the discharge paperwork in advance, as it can take up to 21 days to process. You may also need to provide a contract of sale.

Register the discharge and change of title

The discharge of your mortgage will need to be registered with the land title office in your state or territory and how this happens will depend on your circumstances. If you’re refinancing this will be done by your new lender who will work with your old lender when settling the mortgage. If you’re selling your property your solicitor may do this for you or you can do it yourself. Finally, if you’re repaying your mortgage in full either your lender or you can submit the discharge and change of title with the land title office.

Each state and territory have their own process and fees for land titles. Check your respective government website for all the details for discharging a mortgage and transferring land titles:

• New South Wales
• Queensland
• Australian Capital Territory
• Northern Territory
• Victoria
• Tasmania
• Western Australia
• South Australia

Once this process is complete, either the encumbrance will be removed from your title, or the mortgage details on the title will be changed. 

What are the costs involved?

Discharging your mortgage comes with a range of fees charged by your lender and by the government. The total cost of processing the discharge of mortgage can be up to $350-1,000, depending on when the property is sold and where it's located. 

The fees you'll likely be asked to pay may include:

• Administration or discharge fee charged by your lender.
• Any interest or penalty interest due.
• Break costs if you have a fixed-rate home loan and are discharging it before the fixed period ends.
• Any legal fees incurred by the lender.
• Government fees and charges for registering your Discharge of Mortgage and Registration of Title. See the list of links to each state or territory government's website for the exact fees.
• Any application fees if you're refinancing your mortgage.

What is a Payout Figure?

Payout Figure is a term used to describe the amount of money you need to repay to close a credit account. It's used in all credit accounts such as credit cards, personal loans and home loans. 

If you're looking to payout and discharge your mortgage, you'll need to ask your lender for a payout figure. They will then calculate this using the remaining loan amount, any interest due and any fees or charges excluding the lender's legal fees and government fees. The payout figure changes daily due to the interest still accruing on your loan amount until it's paid out. 

If you're looking to discharge your mortgage through switching home loans, you can check out Yard's range of home loans to find one that is suitable for you.