Discharge of mortgage: When and how to go about it?

When you take out a home loan, the title to your property is held by the lender until you pay off the last bit of the outstanding amount and discharge the mortgage. The process of mortgage discharge releases the title from the lender so you can finally enjoy being the owner of your house. 

However, the process of mortgage discharge doesn’t always happen at the end of the loan term. There are many other situations when you may want to discharge the mortgage and release the title from the lender, such as:

1. When you are selling your house

If you are selling your house, the existing mortgage will be listed on your title as an encumbrance. It means you’ll need to discharge the mortgage to clear the title before any settlement can occur. 

If you want to use your current mortgage to buy your next property, you may consider using the loan porting feature in your home loan rather than discharging the mortgage and applying for a new one. Many lenders allow you to port your home loan to another property by simply switching the security for the mortgage. This means you can sell your current home while using the same mortgage to purchase another property. 

This may save you the hassle of applying for a home loan again. On the flipside, you may miss out on some low interest rate deals on the market if your present home loan isn’t as competitive as it used to be. It may help to discuss your case with a broker before deciding whether to discharge your mortgage or port it to another property, if you’re planning to buy one.

2. Refinancing your mortgage

You’ll also need to discharge your mortgage if you’re planning to refinance your home loan. When you refinance your home loan, you’re closing one loan and opening another one. Therefore, the existing mortgage will have to be released to register a new mortgage on the title. 

Depending on your lender and the terms of your mortgage agreement, there may be additional fees involved in discharging your home loan during the term. For instance, if you break a loan within a fixed interest rate period, you may be required to pay break costs to the lender in addition to the usual discharge fee.

3. Releasing a guarantor from a mortgage

Sometimes, first home owners turn to their parents to help them get into the property market. One of the ways in which your parents can help you is by using the equity in their home to guarantee your mortgage. This can help you increase your borrowing to more than 80 per cent of the property’s value without paying for Lender’s Mortgage Insurance (LMI). 

In case your mum and dad helped you get into your home by guaranteeing your mortgage, you may want to release them from your loan once your equity in the house exceeds 20 per cent. This will require a partial discharge of the mortgage followed by an internal refinance with your lender. 

A partial discharge is when your home loan is secured by more than one property, and you want to release one of those properties as security without repaying the entire loan. A partial discharge usually takes longer than a traditional mortgage discharge, as the lender may want to carry out a valuation of your home before discharging your parents’ home as security.

How long does it take to discharge a mortgage?

Discharging a mortgage generally takes up to 12-15 working days but the timeframe may vary according to your lender. A partial discharge could take longer as the lender may want to carry out fresh property valuations.

How do I discharge my mortgage?

The mortgage discharge process is quite straightforward. Here’s how to go about it in a step-by-step manner:

1. The first step is to contact your lender and inform them about your intention to discharge the mortgage. Your lender will then ask you to fill out a discharge authority form to kickstart the process. You’ll find this form on your lender’s website or they will inform you where to find it.
2. The next step is filling out the form with correct information and returning it to your lender in a timely manner. You may ask your broker to help you in filling out the form or visit your lender to fill out the form at their office to avoid making any mistakes. 
3. Once you have submitted the discharge authority form, your lender will prepare the discharge of mortgage document that must be registered at your state’s Land Titles Office. Most lenders will do this on your behalf but you may also do this by yourself. If you choose to register the document on your own, take some time to check out the correct process on your state’s Land Titles Office website to save time and unnecessary hassle. 

How much does discharging a mortgage cost?

You are generally required to pay a fee while registering the discharge document at your state’s Land Titles Office. However, the fee may vary from year to year and different rules may apply in different states. In general, you could be shelling out anything between $200-$600 in discharge fees, depending on the state in which the property is located. 

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