Unsurprisingly, two thirds of home owners have a home loan in Australia – so what happens to your mortgage when you sell your house?
How much you manage to sell your property for will determine how much of the funds need to go back to the bank. Before you accept an offer from a potential buyer, it’s important to understand how the mortgage process works.
The Fundamentals Of How A Mortgages Work
When you take out a home loan, your lender places a mortgage on your property tied to your name – this appears on the property title, and means that the bank has a formal interest in the home or property. In the event that you’re unable to meet your repayments, the mortgage means that the bank can actually sell your property in order to recoup the costs and funds lent to you.
However, when you sell and eventually no longer own a property – the lender also loses its right to sell it. In exchange for this, they expect to be repaid the money they’ve lent you, which is referred to as a mortgage discharge. This usually occurs before the settlement date with the new owners.
Thankfully, the mortgage discharge process is usually quite simple – you complete the designated discharge authority form, present it to your bank or solicitor, and then you simply wait. Once the final payout figure is decided and the loan is paid out, the mortgage contract is officially over and in turn, you can sell your property.
One major factor to note about this process is that when you’re terminating your loan arrangement, the banks have little to no incentive to process your discharge form quickly – after all, the longer it takes, the more interest they gain – so allow two to four weeks for this to be actioned.
What Happens To Your Mortgage If You Sell For Less Than You Owe
When you sell your house at below the value of your outstanding mortgage, this less than ideal outcome is known as negative equity.
Unfortunately, it’s a risk when house prices are dropping – so if you bought a house at the top of the cycle and are in a position where you are required to sell it at less than the value, you’ll still need to make repayments at the same rate – with or without owning the property.
In order to avoid this scenario, ensure that you do your market research. To reduce the risk of not being able to repay the mortgage and being forced to sell at less than the mortgage value, take care that any mortgages have a lower loan-to-value ratio of 90% as a safeguard.
Even if you have managed to swing the figures in your favour, don’t forget about all of the applicable fees that are associated with selling a home. Just a handful of these include:
- Your lender’s discharge request fee (usually between $250 to $500)
- Break fees if you have a fixed interest rate on your home loan
- Conveyancing or solicitor fees
- Real estate agency marketing fees and commissions
Where To Source Help With The Future Of Your Finances
Since its inception in 2012, Madd Loans has helped over 1700 ordinary Australians obtain the finance they needed in order to get their dreams rolling.
With the entire business built on referrals, the team at Madd have taken the mortgage broking industry by storm. Their overwhelmingly positive feedback has helped them to take out numerous industry awards, including the title of “Queemsland’s Broker Of The Year” for four consecutive years.
After working with a wealth of clients in regards to their mortgage options, it made sense for the team at Madd to have the capacity to offer a full financial planning service. Thus, in late 2019 – Madd Life was born.
If you’re familiar with the Madd Loans brand, then it’s fair to say that you know the team’s captain George Samios. Relentless in his pursuit of gold quality customer service, George quickly spotted another way to best steer his clients towards their financial goals.
“I’ve been in this industry now for ten years, and I really believe in the power of financial planning. If you don’t have an organised plan to achieve your financial dreams – they’ll never happen. What Madd Life essentially does is we aim to pull the goals out of your brain, and transform them into a road map.”
If thinking about your financial future strikes a chord with you, then it might be time to speak to a professional. Whether you’re chasing mortgage solutions or a financial fairy godmother, the team at Madd work together as a collective to turn your goals into reality.