What to do with your mortgage when selling property

Are you planning to sell your property but don’t know what to do with your mortgage? Find out how to pay off your home loan when selling property and what to watch out for.

What happens to my mortgage when I sell my home?

Most of the banks will need you to complete a discharge authority form when you sell your home. This would mean the end of your loan contract.

You can get this done easily by signing your lender’s discharge form and giving it to your conveyancer or solicitor approximately four weeks before settlement. This way, they can handle it all for you.

If you’re not sure where to get your lender’s discharge form from, you can check out our mortgage discharge forms page.

How long does the mortgage discharge process take?

The discharge process is actually fairly simple: you complete your lender’s discharge authority form, present it to your lender or conveyancer and then you wait.

Once the final payout figure is decided and the loan is paid out, the mortgage contract is officially over and you can sell your property.

However, whenever you’re leaving a lender, they have little incentive to process your discharge request quickly. This is because you’re paying more interest the longer they take to complete the discharge process!

There are lenders that take up to four weeks to process a discharge. However, most lenders will take two weeks.

If you’re refinancing, it may be a good idea to put in your discharge request at the same time you apply for your new home loan. It’s recommended that you apply for the discharge only if you’re confident you can qualify for the new mortgage. This way your settlement will not be delayed.

When selling property, a good conveyancer can help you immensely with the mortgage discharge process.

Warning: Selling a property is very expensive!

There are a lot of costs you’ll incur when selling property. Make sure that you can bear extra costs such as:

  • Bank mortgage discharge fee: Lenders typically charge a fee of around $250 to $500 to process a discharge request.
  • Real estate agent fees: Real estate agents usually charge a 2% to 3% commission. However, some may charge more with advertising costs included.
  • Marketing and advertising fees: These fees are generally included in the real estate agent fees and often constitute around 1% of the final property price.
  • Other lender fees: If your mortgage was on a fixed rate, you’ll generally have to pay break costs to get discharged. If you have multiple properties and you’re selling one of them, you may have to pay Lenders Mortgage Insurance (LMI) if you don’t have enough equity on the property you retain.
  • Repairs and renovations: To get the maximum selling price, you need to spruce up your property. The cost depends on how much renovation work you want to undertake. You can check out the guide to increasing your house value for tips and tricks to build value in your property without spending too much.
  • Conveyancer fees: Different conveyancers may charge different fees or base it on the value of the property.

Start planning on your next purchase

If you’re selling your property because you’re upgrading or downsizing, chances are you’ve already planned out your next purchase.

However, if you’re selling an investment property then it may be a good idea to start planning on your next purchase.

Before you sell though, speak with your accountant to make sure it’s the right way to go. Your accountant can also help you to manage your investment strategy, whether you’re aiming for positive gearing or negative gearing. They can also let you know whether Capital Gains Tax (CGT) may be applicable.

Our mortgage brokers specialise in securing finance for homes as well as investment properties. We can help you build a strong loan application so you can qualify the first time around.

You can discuss your next purchase with one of our credit specialists by calling us on 1300 889 743. You can also apply online and we’ll contact you within 24 hours.

  • Ewen9

    I will be selling my house by the end of the year. There’s still a mortgage on it but that doesn’t matter too much. Do you have any ideas on how I may be able to get its value to rise a but when I sell, and not spend a fortune in the process?

  • Hey, there are ways that you can boost your house value quickly without spending big bucks. You’ll need to cater to what the market wants and by going cosmetic in renos and appealing to a wide group, you’re well on your way to maximising your selling price. For more information, you can check out our page on increasing your house value:

  • joanne

    We need to sell our investment property but wont make enough on it discharge the mortgage – can we do this and how does that affect the remaining money owed? How do we go about doing this – property not performing how we thought it would and added finances associated with it are killing us. (body corporate etc)

  • Hi Joanne,
    If you decide to sell your property, then you need to pay the entire amount you owe to the bank even if you sell your property at a lesser price than what you have paid for. Yes, it’s a sad reality that the property markets are not performing well at this point in time. So, that leaves you with two options: either wait for some time until the entire market picks up again or sell now and pay the difference amount.

  • Reecesos

    Random question for you.
    Wanting to use our equity to purchase our second home. Will have to get mortgage insurance to purchase the house we like and will keep current home as investment property. Our plan is to sell our current house in about 2.5yrs to fund a year overseas. My question is, “seeing as we have to pay mortgage insurance, does that mean that when we sell our current house we only have to give the bank the outstanding amount owing on our current house and pocket the rest or would they expect us to fork out 5/10/15/20% for the new house?”

  • Hi Reecesos,
    Typically, you can release up to 80% of the property value as equity to use as a deposit to purchase a second property without incurring LMI. You can release up to 90% of the property value but LMI will be applicable. So, when you purchase a second property the amount of equity you released (cashout) will be added on to the home loan amount of your current house. Down the line when you want to sell your current house, you would only have to pay the bank the new outstanding amount plus any discharge fees and you can then pocket the rest.