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What Happens to Your Mortgage When You Sell Your House (And Buy Another)?

December, 14th
Settled Team
Conveyancing Tips

Are you considering selling your property in Victoria but are still midway through your mortgage? Or maybe you’re eyeing another property and thinking about buying it simultaneously?

This situation is more common than you might think, and understanding the ins and outs is crucial. Here’s what you need to know.

Can You Sell a House With a Mortgage?

Yes, you can sell a house while it’s still under a mortgage. In fact, in Australia, it’s a frequent scenario. 

The average mortgage term spans 25-30 years, yet many homeowners find themselves moving on after around 11 years or so. 

When you decide to sell your mortgaged property, the proceeds from the sale are first allocated to paying off the remaining mortgage balance. 

  • It’s a straightforward process: the sale closes, your lender gets paid, and any remaining amount from the sale proceeds is yours. 

This remaining sum could be used as a down payment for your next property or invested in other ways. 

Settled Tip: It’s important to be aware of any potential fees or penalties for early mortgage discharge, which can vary depending on your lender and mortgage terms.

Do You Need a Conveyancer to Discharge Your Mortgage?

The discharge of a mortgage is a critical step in selling your property. While you’re not legally required to hire a conveyancer to manage this process, it’s often a wise decision. 

A conveyancer specialises in property transactions and can navigate the complexities of mortgage discharge with ease. 

They ensure that all the i’s are dotted and t’s are crossed, so you don’t face any legal hiccups down the line. This includes dealing with the paperwork, liaising with your lender, and ensuring that the mortgage discharge is recorded properly.

Engaging a professional not only gives you peace of mind but also helps expedite the process, making your property transaction smoother and more efficient.

What is a Discharge of a Mortgage?

The term ‘discharge of mortgage’ might sound technical, but it’s a straightforward concept. It refers to a legal process that officially removes the lender’s claim on your property, signifying that the mortgage has been fully paid off.

This process is essential when you’re selling your home. Why? Because it legally frees up the property from any claims or liens that the lender had due to the mortgage. Once the mortgage is discharged, you’re free to transfer the property’s title to the new owner without any mortgage-related encumbrances.

It’s a crucial step in ensuring that the sale of your property is clean and legally binding. The discharge process typically involves submitting a request to your lender, who then prepares the necessary documents to release the mortgage hold on the property.

The Process of Selling a House With a Mortgage

Thinking of selling your house but still paying off a mortgage? Here’s a simple guide to help you through the process.

Step 1: Check Your Mortgage Balance

First up, find out how much you owe on your mortgage. This is your payout figure and includes everything you need to pay off.

Step 2: Decide the Sale Price

Talk to your real estate agent to set a price for your house. You want this price to cover your mortgage payout and any extra costs like agent fees.

Step 3: Get Legal and Financial Advice

It’s a good idea to have a chat with a conveyancer. They’ll handle the legal requirements and make sure everything’s in order.

Step 4: Sell Your Property

Your real estate agent will help you market and sell your house. This includes showing it to buyers and negotiating offers.

Step 5: Pay Off the Mortgage

Once you’ve got a buyer and a sale price, your legal team will work with your lender to pay off your mortgage from the sale money.

Step 6: Wrap Up the Sale

The final step is the settlement. This is where you officially hand over the house to the buyer and get any leftover money from the sale.

Transferring Your Mortgage to a New Property 

Thinking about transferring your mortgage to a new property? This option, known as mortgage portability, is a feature of some home loans that allows you to keep your existing mortgage, including its interest rate and terms, when you move to a new property. 

This can be particularly advantageous if your current mortgage has favourable terms or a lower interest rate than what’s currently available in the market. 

However, it’s crucial to remember that not all mortgages are portable. Check with your lender to understand if your current mortgage supports this and what the associated costs might be. 

There may be valuation fees, application fees, or other charges involved in transferring your mortgage. Additionally, your new property will need to meet certain criteria set by your lender.

Selling Your House? Trust the Experts at Settled

Thinking of selling your home? At Settled, we understand that navigating the property market, especially when dealing with mortgages, can be daunting. 

That’s why we’re here to guide you through it. Our team of experienced professionals is ready to assist you with every aspect of selling your home, ensuring a smooth and stress-free experience. 

From understanding the ins and outs of mortgage discharges to handling the intricacies of the property market, we’ve got you covered.

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Mortgage Sale FAQs 

If I sell my house, can I transfer my mortgage? 

Yes, in most cases. This process, known as mortgage portability, lets you transfer your existing mortgage to your new property. Remember, though, terms and eligibility can vary, so it’s best to chat with your lender first.

What is a mortgage sale? 

A mortgage sale usually refers to the selling of a property that is under a mortgage. The proceeds from the sale are used to pay off the mortgage balance.

How long does it take to discharge a mortgage? 

The time frame can vary, but generally, discharging a mortgage takes around two to four weeks. It involves your lender and possibly a solicitor to ensure all legalities are managed correctly.

What is a substitution of security?

This is a bit of finance jargon. Substitution of Security is when a lender allows you to switch the collateral (usually your house) tied to your mortgage with another property. It’s a handy option if you’re selling one property and buying another but want to keep your existing mortgage.

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