If you sell a property with a mortgage on it, the loan is usually paid out from the sale money at settlement.
Your lender signs a discharge of mortgage, which is lodged electronically so the title passes to the buyer clear of the loan.
Tell your lender early. If the sale price will not cover the loan, you need the lender's permission to sell at that price.
Why the mortgage must be cleared
A mortgage stays registered on the title until the debt is paid in full.
The buyer is paying for a title free of your loan.
So the loan is paid out and the mortgage is discharged as part of settlement.
Step by step
- Tell your lender you are selling. Do this once you have decided to sell, not in the last week. Your lender will have its own process. Ask it what it needs from you and how much notice it requires.
- Ask for a payout figure. This is the amount needed to clear the loan on the settlement date, including interest and any fees.
- We tell the lender the settlement date and arrange for the lender to take part in settlement.
- At settlement, the payout amount goes to the lender from the sale money.
- The lender signs the discharge of mortgage. In NSW, a discharge of mortgage can only be lodged electronically. This has been the rule since 1 July 2019.
- The balance of the sale money is paid as you direct.
Fees to ask your lender about
For home loans taken out on or after 1 July 2011, the law bans early termination fees, with some exceptions.
The ban does not cover break costs on a fixed rate loan. It also does not cover discharge fees.
If your loan is on a fixed rate, ask your lender for the break cost before you sign with the agent. It can be a large figure, and it comes out of your sale money.
Loans taken out before 1 July 2011 may have different fee terms. Read your loan contract.
If the sale price will not cover the loan
If the net sale price will not pay out the mortgage in full, you must get your lender's permission to sell at that price first.
Your lender may ask for evidence of the sale, such as the agency agreement, the advertising, the first page of the contract and the marketing plan.
If your lender refuses, get legal advice.
Other loans secured on the property
A property can have more than one mortgage registered on it, for example a second loan or a business loan.
Each one stays on the title until its debt is paid.
We search the title before the contract is prepared, so every registered mortgage is known from the start and each lender can be told early.
Where sellers get caught
Where sellers get caught
Forgetting the fixed rate break cost.
Break costs on fixed rate loans are not covered by the ban on exit fees.
Asking the lender in the last week.
Your lender must be ready to take part in settlement on the agreed day. Tell it as soon as you decide to sell.
Selling for less than the loan without permission.
If the net price will not clear the mortgage, you must get the lender's permission first.
Forgetting a second loan on the title.
Every registered mortgage stays on the title until its debt is paid. The buyer is paying for a clear title.
Common questions
Do I need to pay off my mortgage before I sell?
No. It is usually paid out from the sale money at settlement.
Can my lender charge me for paying out the loan early?
For loans from 1 July 2011, early termination fees are banned, with some exceptions. Break costs on fixed rate loans and discharge fees are not covered by the ban.
What if I owe more than the sale price?
You must get your lender's permission to sell at that price before you sell.
Selling with a loan on the property? Call us before you sign with the agent. Call (02) 8062 6300.
This article is general information only. It is not legal advice for your situation.