Discharging Your Mortgage – What You Need to Know
So much attention is given to getting a mortgage, yet once in place most homeowners don’t understand the process of discharging one which, technically, they will most likely have to do at some stage. Errors can be costly and delays stressful, so it makes good sense to understand what is involved when discharging your mortgage.
There are three primary reasons for discharging a mortgage over a property, which include:
Selling the property
Refinancing to a different financier
Paying off the loan and releasing the encumbrance
In the current rather buoyant property market, houses are changing hands with an urgency not seen for quite some time. Low interest rates are enticing mortgage holders to shift to better deals and those with the means are paying off their mortgages without hesitation. All this translates into more customers discharging, therefore creating a strain on the service levels of many lenders. The assistance of a mortgage broker through this process is invaluable.
Discharging for a sale
If you have sold a property you will need to advise your mortgage broker as soon as possible so they can complete the Discharge of Mortgage paperwork (there are, however, some lenders who will insist on the client contacting them direct).
If the property being sold is the only one held, this is termed a Full Discharge and is quite straightforward. The lender will need a copy of the Contract to verify the sale and its terms, and assuming there are funds left over at settlement after applicable fees and charges are deducted, an account should be nominated for sale proceeds to be credited into.
If you are selling a property but have remaining securities and loans with the lender, this is known as a Partial Discharge, and the process a little more complex. After reviewing the Contract of Sale and Discharge Authority, the lender will conduct valuations on the remaining properties to verify what the end position will be in terms of loan to value ratio. If the security position is not strong, the lender may insist on keeping proceeds of the sale so the loan to value ratio to remain at 80%. Given what is potentially involved with a Partial Discharge, you can expect the processing to be longer than a full discharge.
Discharging to refinance
When discharging a mortgage from one lender to refinance to another, a request is submitted with the outgoing lender usually after you have your formal finance approval with the new bank in place. Once your existing lender is notified of your instruction, they will normally give you a “retention” call to try and win your business back. The customer in most cases will have already psychologically divorced themselves from their existing lender at this point, so any carrots the lender may wish to dangle to get them to stay are often in vain.
Once the new lender is ready to settle and the outgoing lender has processed the discharge request, the two institutions will communicate with one another and agree on a day and time for the refinance to take place. Nowadays electronic settlements are becoming the norm so its less common for there to be a physical handing over of cheques and titles. This process all happens behind the scenes and the client will simply have a mortgage with one lender one day and a mortgage with another lender the next without too much disruption.
Paying off the loan
When you clear your home loan and no longer have repayments to make this does not automatically mean that the mortgage is released. The mortgage holder still must apply to the lender to discharge the mortgage over the property in much the same process as a refinance, but instead of the title being held by the new lender, it is instead released to the property owner.
Property owners who have paid off their debt may not realise that they still have a mortgage over their property. Ultimately this is of little consequence, though it may need to be addressed if you offer the property as security guarantee for a family member.
Discharging a mortgage over a property is a common and usually straightforward process but one that is best left in the hands of your mortgage broker to ensure it is completed without fuss. Don’t forget to contact your Blackburne Mortgage Broking team to enlist their expert assistance if you are selling your property or looking for refinancing assistance.