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"What Happens to Your Home Loan When You Sell? Understanding the Conveyancing Process for Australian Homeowners"

Updated: May 30

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Most Australians who sell their home don’t actually own their property outright.

So, understanding what happens to your loan when you sell is knowledge worth having.


The Mortgage Process

When you first take out a home loan the lender places a mortgage on the property you have purchased.

That mortgage is then listed on the property title because, as the lender, they have a legal interest in that property. By the lender holding the mortgage, that means if you don’t meet your financial repayments and default on the loan, they can pursue legal avenues to recover their money, and that may include selling your property.

When you sell your property and it has an active mortgage, the lender/mortgagee loses their right to sell it. To protect themselves from this, when you sell, you must settle the full amount of your mortgage – called a discharge of mortgage – on the day of settlement with the incoming buyer.

Preparing your mortgage discharge prior to settlement day

It’s vital that you take the first steps to arrange your mortgage discharge as soon as you know the settlement date of the property you are selling. Discharging a mortgage can be time consuming. Its best to discuss this with your conveyancer, if you are unsure, as well as with your mortgage broker, to make sure you have the right information.

Once you have completed your discharge of mortgage application, your lender will be in contact with your conveyancer (or solicitor) through an online platform designed for Electronic Property Exchanges (also known as PEXA) At that time, any money they’re owed will be received by them and the lender will lodge a discharge of mortgage with the land titles office in your State or Territory. This confirms they no longer hold a financial interest in the property you have sold.

Discharging a mortgage can indeed involve various fees and charges, which can vary depending on your lender and the terms of your mortgage agreement. It's crucial to be aware of any potential break costs or early repayment fees that may apply if you're paying off your mortgage earlier than contracted.

When selling your property, the funds received from the sale will typically go towards covering the outstanding balance of your mortgage. However, if the sale proceeds don't fully cover what you owe, you'll need to have additional funds available to settle the mortgage and complete the property sale successfully. Ensuring you have these funds ready can help avoid any complications during the settlement process.

What happens next?

Your conveyancer plays a crucial role in ensuring a smooth property sale process by handling various financial aspects. They will inform you about any outstanding rates, utilities, and fees owed to relevant parties, such as the real estate agent.

If you're not immediately purchasing another property, any surplus funds from the sale will typically be transferred to your nominated bank account. However, if you're engaging in a simultaneous settlement for a new property, the funds from your property sale will be directly allocated to the new purchase.

In the case of purchasing a new property with a mortgage, your lender will secure their interest by placing a mortgage over the new property. In states where paper certificates of title are still used, the bank will retain the certificate of title for the new property as security for the mortgage. Your conveyancer/solicitor will guide you through these steps to ensure a seamless transition.

Transferring your Mortgage or Substitution of Security

Substitution of security, also known as loan portability, offers the convenience of transferring your existing mortgage from one property to another. Depending on your financial situation and your lender's policies, you might be able to pay a small fee to shift your current mortgage balance from the property you're selling to the new one you're buying. This means that the interest rate and other terms of your existing loan remain unchanged for your new property.

In some cases, you may need to adjust the size of your loan or contribute additional funds to facilitate the transfer. However, if the property you're purchasing is less expensive than the one you're selling, you might receive a portion of the sale proceeds from your old home or simply reduce your loan balance.

To explore this option further and understand its implications for your specific situation, it's advisable to discuss with your lender or mortgage broker. They can provide detailed information and guidance tailored to your needs and circumstances.

Trust a professional team

When navigating finance matters related to property sales and purchases requires careful attention and expertise. Having a reliable team of professionals by your side is essential for making informed decisions that safeguard your financial interests.

An experienced accountant can provide valuable insights into the tax implications of your property transactions and help optimize your financial strategy. A conveyancer or solicitor specializes in handling legal aspects of property transactions, ensuring that contracts are thorough and all legal requirements are met. Meanwhile, a trusted loan broker can assist in finding the most suitable financing options for your needs, ensuring you secure the best possible terms for your mortgage.

By assembling a competent team of professionals, you'll have access to the expertise and guidance necessary to navigate complex financial issues confidently. This comprehensive approach empowers you to make well-informed decisions and protect your financial interests throughout the property sale and purchase process.


Have a question about the process? Or want to speak to a member of our team?  Our team of lawyers are here to help. You can get in touch on 07 32781888


This article is provided for general information purposes only. Its content is current at the date of publication. It is not legal advice and is not tailored to meet your individual needs. You should obtain specialist advice based on your specific circumstances before taking any action concerning the matters discussed in this



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