Selling a House with a Mortgage?

Published On: 25 April 2024

What steps are involved in selling a House with a Mortgage?

Most people have a mortgage on their home. But what if you want to sell your home when you owe money to the Lender?

Before you list your home up for sale you should understand exactly what your rights and obligations are when you sell your home. Strathalbyn Conveyancing can help you understand what needs to be done and you will need to involve your lender in the process.

Lender’s Registered Interest

If you have a mortgage registered on your property’s Certificate of Title, your Lender will be listed as the Mortgagee.

This means that the Lender has a ‘registered interest’ in the property. It also means that they can sell the property if you default on your mortgage repayments.

Paying out your loan and removing the Lender’s ‘registered interest’ from your property is known as discharging your mortgage or releasing your mortgage.
We recommend you ask your lender for a ‘closing statement’ for a breakdown of the costs involved to repay the loan and discharge the mortgage.

How To Start a Discharge of Mortgage

To start the process of discharging your mortgage for a sale settlement, you must complete a Discharge of Mortgage Authority form specific to your Lender and submit it as soon as you can, especially if settlement is within 30 days. It is important to include your Conveyancer’s details on the form so that the Bank will discuss your file and book settlement with them. Your Conveyancer should also be provided with a copy of the completed and signed form so that they are informed of what you wish to occur at settlement.

To avoid any delays with the settlement of your property, it is critical that you lodge the Discharge of Mortgage Authority form early because Banks can take three weeks or more to process your request.

If you have not sold your property and there is no settlement e.g. you are in a position to repay your loan your Bank will also arrange for Land Services SA to discharge the mortgage remove them as the mortgagee, the fee for this process is varies between Banks and is approx. $150 and $600.

Where do you obtain a Discharge of Mortgage Authority Form?

Each Lender has its own specific Discharge of Mortgage Authority form or online link.

The form and online link are available on the Bank’s website, you can also contact your Lender directly or alternatively ask your Conveyancer for assistance. The Banks require the form to be printed and signed with a pen by all parties, they will not accept an electronic signature. This is because they check the signature on the form to the signature on the original loan documents.

If there is a Guarantor to the loan, their details need to be listed on the form and their signature is also required.

Do you need to Discharge the Mortgage if you have repaid your loan?

Yes, this is required if you want to transfer or sell your property.

Vendors are often surprised to find that there is a mortgage listed on their Certificate of Title, years after they have repaid their home loan. This is because most Lenders do not formally ‘Discharge the Mortgage’ unless they have received a specific request to do so and the required paperwork has been completed.

What happens to the loan and mortgage at settlement?

Your Conveyancer will oversee the process of finalising your loan and discharging the mortgage at settlement.

They organise payment of the outstanding loan balance and pay the discharge of mortgage fee or any other fees from the sale price received for your property. Once all costs are paid your Conveyancer will ensure that the balance of the settlement funds are directed pursuant to your instructions.

Your Conveyancer will provide you with an interim Settlement Statement before settlement day, showing the itemized payments that will be made on your behalf.

The final payout figure is usually issued by the Bank on the morning of Settlement, so you will receive a final statement with the accurate figures after settlement has been completed.

Can I sell my property and keep my existing loan if I buy a new property?

Possibly.

Some Lenders offer ‘loan portability’ or ‘substitution of security’. This means that the existing home loan is retained with the mortgage discharged over the property being sold, with the Bank registering a new mortgage over the new property you are purchasing. We recommend that you talk to your Lender and Financial Advisor to see if this is a good option for you.

Can I Buy Another Property Before I Sell My House?

Some Lenders offer a ‘bridging loan’, which is a short-term loan that covers the gap between buying your new home and selling your old one. We recommend that you discuss this with your Lender and Financial Advisor before taking this step, to ensure it is a suitable option for you.

Alternatively, you can have a ‘Subject to Sale Clause’ included as a special condition in the Contract to purchase your new property. This means that your sale and purchase settlement will happen on the same day or your sale settlement is completed first, with your purchase settlement occurring on a later date.

If you are considering purchasing another property, make sure you allow for Government stamp duty, Land Services SA transfer registration fees, insurance, building and pest inspection reports, conveyancing fees and incidental costs.

What if the Sale Price is Less Than Your Mortgage?

This is called ‘negative equity’ and means you owe more than the value of your property.

The difference between the sale price and your loan balance is a debt you are liable for. This is often referred to as the ‘shortfall’ and your Lender will recover this amount from you, or from their Mortgage Insurer, who in turn will recover it from you.

Get Expert Help

For professional Conveyancing services and help to successfully navigate the selling process, or any Discharge of Mortgage queries, please contact Strathalbyn Conveyancing today. Our experienced team will strive to ensure a smooth and stress-free transaction for you.