We explain the steps involved and what to look out for when selling a house with a mortgage.
When you buy a house using finance, from a bank or other lender, the bank registers a mortgage on the certificate of title. This is because the property you purchase acts as the security the bank takes when they lend money. The mortgage gives the lender the right to sell the property if you default on the loan.
A title cannot be transferred or amended without the mortgage being removed or ‘discharged’ as it is commonly referred to. If it is an amendment the mortgagee provides their consent.
The bank holds the mortgage and controls the title and over time you presumably pay down the principal amount and interest.
You can sell the property for whatever amount you wish to. However, the lender will only discharge the mortgage once they have been paid their money.
Some homeowners and certainly property investors have more complex lending arrangements with their bank and need to be aware of what the process is when selling a house with a mortgage.
If you have a loan on your property, you can ask for an indicative payout figure at any time. This is an indication from your lender of the total amount to payout the loan and discharge the mortgage. As the name suggests it is an indication only.
Some people may have an early payout fee or other costs associated with their home loan.
This is why it’s important to get an indicative payout figure when selling your property, particularly if you have a high loan to value ratio LVR.
Sometimes people are unaware that their property is being used as collateral for another loan.
This is a common cause of settlement delays for vendors. If you have other loans, speak to your lender early about whether it is used as security. They will be able to tell you if any other loans or credit cards that are secured with the property you are selling.
Once you have your payout figure you will be able to work out how much you will get from the sale. You will need to deduct any other costs such as agent’s fees, conveyancing fees, outstanding rates and adjustments to get a clear indication on how much you will get from settlement.
Once you have sold the property your conveyancing lawyer will request the lender to discharge the mortgage. The lender is a party to settlement and when they receive their funds at settlement they release the mortgage and property ownership can be passed onto the new purchaser.
If you have a more complicated finance structure you should arrange for the discharge of mortgage early.
The bank may need to order valuations on other properties and this may take some time.
You may also need to refinance all leave monies to ensure the LVR loan to value ratio is what the bank requires.
Banks have certain lending rules and may need to maintain a certain LVR against your other properties or payout your other personal loans.
If you will be paying capital gains tax on your property this too will be deducted at settlement.
If you were buying and selling a property on the same day, a mortgage is not transferable. A new loan will need to be applied for and a new mortgage will be arranged.
At settlement you settle on the sale first and your purchase settlement will be scheduled after that.
With electronic settlements funds are transferred directly from one account to another. If you are not using the same bank for your next purchase your funds from your sale will have to go to your lawyer’s trust account or into a nominated bank account of your choosing.
Once your sale settlement has gone through, those funds will be available for your purchase. If you were using the same bank, your bank can access the funds directly from your account.
In some instances, the loan will not be paid out in full. Only the mortgage securing the loan will be removed from the certificate of title.
This is called a partial payout. If you are doing this, generally the other security will be valued by the bank or lender. This may slow the process so its best to get organised early.
In some instances, you may have to pay money to settle on the sale of your property. This could be the case if you don’t have enough equity or were selling your property at a loss.
This means you pay the shortfall due to the lender at settlement. Once the figures are worked out you make the shortfall available in your bank account with the lender. If this isn’t possible, you can put the monies into your solicitor’s trust account. During settlement the monies are transferred to the lender . Once the lender has their funds, they will discharge the mortgage and release the title at settlement.
Selling a house with a mortgage is commonplace in Australia where most people borrow money to buy a house.
Your bank or lender will be able to guide you through how much your loan payout is and your conveyancing solicitor will arrange the rest.
We negotiate with banks and can handle some very difficult situations for clients to get settlement done.
To get help with conveyancing speak to one of our team today on 1300 900 440.
At Conveyancing Depot we are experienced in all types of conveyancing and transfers and our advice is helpful and relevant.
Disclaimer: This article has been prepared for general information purposes and may not apply to your situation. This information should not be relied upon for legal, tax or accounting advice. Your individual circumstances will alter any legal advice given. The views expressed may not reflect the opinions, views or values of Conveyancing Depot and belong solely to the author of the content. © Conveyancing Depot Pty Ltd.
If you require legal advice specific to your situation please speak to one of our team members today.
Jessica is an experienced conveyancing lawyer and has enjoyed helping many clients buy and sell...