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Discharging a mortgage

July 29, 2023

Welcome to the finance update for the week ending 29 July, 2023.

I’ve said it before, more than once if I’m being honest, but the indicators cited as justification for the RBA increasing rates once again suggest that (a) the succession of interest rate increases are having are having the desired effect on reducing inflation, and (b) interest rates should remain steady when the RBA meets again in a few weeks time. But I could be wrong.

It is curious to note that many lenders increased some of their interest rates a few days prior to the last round of inflation figures coming out, which is/was perhaps premature. Is this simply a money grab? Far be it for me to suggest that!

In this week’s newsletter, we take a look at the mortgage discharge process and where it can encounter problems.

Discharging your mortgage is a crucial step in a buyers journey as a homeowner or property investor. Knowing the process can save them considerable time, effort, and money.

What does it mean to discharge your mortgage?

When you obtain a mortgage, the bank holds the title to your property until you fully repay the home loan. Once the mortgage is paid off, you must go through a procedure to release the loan and remove the lender from the property title. This process is known as mortgage discharge or mortgage release.

However, it’s essential to note that discharging a home loan doesn’t always happen automatically at the end of the loan term. Here are several instances that require you to discharge your mortgage with the lender:

Complete Repayment: If you have paid off your entire loan and want the lender to release the property from the mortgage, you must file and record a mortgage discharge at your state’s Land Titles Office to legally release the lender from their obligations.

Property Sale: Before selling your house, it’s crucial to ensure your mortgage has been discharged to avoid settlement delays. Any existing home loan will be registered on the property’s certificate of title as an encumbrance, which can hinder the smooth transfer of property ownership.

Loan Refinancing: When you refinance your home loan, you need to discharge your mortgage as you are closing one loan facility and opening another. Besides discharge charges, other fees may apply, especially if you are breaking a loan within a fixed period.

Discharge Challenges

In the case of paying off your mortgage or selling the property it is secured by, the process doesn’t normally encounter many complications. The same can’t always be said when refinancing as the the bank who is losing the loan doesn’t want you to go to a competitor.

How can this manifest itself? Sometimes the incumbent bank will contact the borrower directly and offer them a better deal which can cause the borrower to second guess their refinancing decision. Other times, the lender losing the loan can simply, and probably deliberately, move slower than necessary through the process.

When confronted with this, the borrower can become quite stressed. One of our roles as a broker is to shield the borrower from this gamesmanship where possible.

If any of your clients would like more information about the discharge process, please have them call us on 1300 366 296.

Any changes in interest rates from last week are highlighted in orange.

Note – Increases announced by lenders as a result of RBA decisions normally take 1-2 weeks to come into affect.

Variable

The rates below are based on a $500,000 loan, with the borrower making principle and interest payments with a loan term of 30 years. The rates quoted may vary depending on the borrowers LVR.

1 Year Fixed

The rates below are based on a $500,000 loan, with the borrower making principle and interest payments with a loan term of 30 years. The rates quoted may vary depending on the borrowers LVR. At the end of the three year fixed period, the borrowers interest rate will revert to a standard variable rate for the life of the loan.

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