What Happens to Your Mortgage When You Sell?

Selling your house doesn’t automatically wipe your mortgage, you have to close (or discharge) the loan first. This guide breaks down the steps in plain English and shows you how to keep fees, interest and stress to a minimum.

Mortgage discharge explained

When you took out your home loan, the bank registered a mortgage (its legal interest) on your property title. Before ownership can transfer to the buyer you must pay the loan in full and ask the bank to remove that interest. This legal removal is called a mortgage discharge.

Step‑by‑step discharge timeline

Below is a typical 21‑day schedule for electronic settlements. Rural or paper processes can take longer.

1. Lodge the discharge form (Day 0) – You sign the lender’s discharge (or “release”) form, either online via PEXA or on paper.

2. Lender processing (Days 1‑10) – The bank calculates the payout figure and any fixed‑rate break costs.

3. Book settlement (Days 10‑18) – Your conveyancer, the buyer’s solicitor and both lenders agree on a settlement slot.

4. Settlement (≈ Day 21) – The buyer’s funds pay out your loan. The lender removes its mortgage from the title and transfers “title control” to the buyer’s lender.

Mortgage discharge fees

When you sell, you need to consider any lender fees for paying off your mortgage. These can include:

• Mortgage discharge fee
  This is a common fee for discharging your mortgage and can be anywhere from $150 to $400. Lenders charge this to cover the admin costs of paying out your loan in full.
• Break costs
  This only applies to fixed rate loans. The cost will vary depending on the length of your remaining fixed rate term, the agreed rate and whether current rates are higher or lower than your existing rate.
• Early payment fee
  If you pay off your mortgage within 3 or 5 years, some lenders may charge an extra fee.

What happens to my mortgage at settlement?

On settlement day the buyer’s lender transfers the balance of the purchase price. Your conveyancer pays, in this order:

1. 1. Your lender’s payout figure (loan balance + fees above)

   2. Outstanding council and water rates

   3. Real‑estate commission and marketing cost

   4. Conveyancing / legal fees
   5. The remainder (your equity) to your nominated bank account or towards the purchase of your next home.

What happens to my mortgage when I buy another property?

Many homeowners buy a property after selling their own property. During the sale settlement period, you will discharge your mortgage as normal and apply for a new home loan at the same time. Your lender will then discharge their interest on the title of the home you’re selling and register an interest on the title of your new home.

Can I transfer my mortgage to my new property as a substitution of security?

Yes, some lenders offer home loan portability when you sign up for a mortgage. This allows you to keep your existing loan when you sell and simply transfer the lender’s interest to the title of your new property. This is called substitution of security. Your mortgage may increase or decrease:

• If you are buying a more expensive property, your lender may increase your loan amount or you may contribute extra funds. 
• When you end up buying a cheaper property instead, your lender will either reduce your loan amount or give you the remaining part of the sale amount.

What happens when the sale price doesn’t cover the mortgage?

Sometimes you find yourself in the unfortunate position of owing more on your mortgage than what your property is worth in the current market. This is called negative equity. 

A lender will not allow settlement to occur if they are unable to recoup the full outstanding mortgage amount. You will need to pay the difference from your own funds or sell some of your assets to make up the shortfall.

In this situation, it might be better to hold on to the property until its market value increases. You might even be able to rent it out and cover some of the ongoing costs of ownership. For more on renting out your property, click here.

Should I buy or sell my property first?

Depending on your situation, buying or selling first could be the right option for you. Before you list your home or go house hunting, it pays to know the pros and cons of each.

Pros and cons of buying first

Pros and cons of selling first

What is simultaneous settlement?

Timing property deals can be tricky but, with a good real estate agent, it is possible to buy and sell at the same time. This is called simultaneous settlement.

Speak to an agent about simultaneous settlement

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For this to work, you, your buyer and the seller of your new property will need to be flexible. If one party can’t fit in with the schedule of the other two, then simultaneous settlement won’t work.

Benefits of simultaneous settlement

Despite the challenges, many homeowners do manage to settle simultaneously, which gives you the best of both worlds. You:

• know how much you have to spend
• Reduce stress about whether you will sell or buy in time
• only need to pay for one mortgage at a time
• avoid having to move twice.

Using a bridging loan

If you can’t manage simultaneous settlement but have found your dream home and simply can’t wait, a bridging loan can help bridge the gap between when you buy and when you sell.

A bridging loan is temporary and charges a higher interest rate, so it isn’t the right option for everyone. Read more about simultaneous settlement, bridging loans and other options in our guide to buying and selling at the same time.

What happens if I sell without a mortgage?

If your hard work has paid off and you are mortgage free when you decide to sell your property, the entire sale price comes to you at settlement, minus any selling fees, like conveyancing fees. 

But, for the vast majority of homeowners, owning a property means a large debt to their lender, which can be costly if you decide to discharge the mortgage early since lenders rely on interest payments to stay in business. An experienced real estate agent can save you money throughout the sales process, which is often enough to cover the cost of an early mortgage discharge. Compare agents in your area and see how they can help you achieve a successful sale.

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