Selling your home or investment property does not necessarily mean you need to have your mortgage paid off before you can sell.
In fact, many Victorian property owners sell their property while there is still an existing home loan secured against the title.
The important thing is to make sure your lender, conveyancer and settlement arrangements are properly coordinated so the mortgage can be discharged as part of the sale.
This article explains what happens when you sell a property with a mortgage in Victoria and what you should know before settlement.
Can I sell a property if I still have a mortgage?
Yes.
Having an existing mortgage does not normally prevent you from selling your property.
When you purchased the property, your lender registered a mortgage over the title as security for the loan. When you sell the property, the mortgage generally needs to be discharged as part of the settlement process.
Your conveyancer will communicate with your lender and arrange the necessary settlement requirements.
The sale proceeds are then used at settlement to pay the amount required to discharge the mortgage, along with other amounts that need to be paid or adjusted.
Any remaining balance is generally paid to you according to your settlement instructions.
What is a discharge of mortgage?
A discharge of mortgage is the process of removing the lender’s mortgage from the property’s title after the secured debt has been paid.
Land Use Victoria describes a discharge of mortgage as a dealing lodged after the mortgage has been repaid. Once registered, the reference to the mortgage is removed from the title.
For a property sale, the discharge is usually coordinated with the settlement so that the buyer can receive clear title in accordance with the contract.
What should I do when I decide to sell?
One of the most important things is to tell your lender that you are selling the property.
You will generally need to complete your lender’s mortgage discharge authority or follow the lender’s process for requesting a discharge.
It is a good idea to start this process early rather than waiting until just before settlement.
Your conveyancer can then work with your lender to obtain the information required for settlement.
Why is it important to start early?
Bank processing times can vary.
If the mortgage discharge is not properly arranged, it may cause unnecessary delays or complications at settlement.
Your conveyancer will need to coordinate with the lender, the buyer’s conveyancer or solicitor and the electronic settlement platform to ensure the settlement can proceed.
How much of my mortgage needs to be paid off?
The amount required to discharge your mortgage is not necessarily the same as the balance you see on your online banking account.
The lender will usually provide a payout or discharge figure that takes into account the amount required to fully discharge the loan at settlement.
Depending on your loan, this may include:
- The outstanding loan balance
- Accrued interest
- Applicable lender fees
- Other amounts required by the lender
- Any applicable break costs or early repayment costs, depending on the loan
Your lender will provide the final amount required for the discharge.
Your conveyancer will use the lender’s settlement figures when preparing the settlement statement.
What happens to the sale proceeds?
The sale price is not simply paid directly into your bank account on settlement day.
At settlement, the money is distributed between the parties according to the settlement arrangements.
For a seller with a mortgage, the sale proceeds may be used to pay:
- The amount required to discharge the mortgage
- Any other secured amounts that need to be paid
- Adjustments for rates and other outgoings
- Any other amounts authorised or required as part of settlement
The remaining balance is then paid to the seller’s nominated account, subject to the settlement arrangements.
For example, if you sell your property for $800,000 and your lender’s final payout figure is $350,000, the mortgage does not simply continue after settlement. The mortgage is discharged and the remaining sale proceeds, after other applicable settlement adjustments and costs, are paid to you.
The figures will depend on your individual circumstances.
What if my mortgage is higher than the sale price?
This is an important issue to identify before settlement.
If the amount required to discharge your mortgage and other settlement amounts is greater than the net sale proceeds, there may not be enough money from the sale to complete settlement.
For example, if a property sells for $500,000 but the amount required to discharge the mortgage and other relevant settlement amounts is $530,000, there is a shortfall of approximately $30,000.
In that situation, you should speak with your lender and conveyancer as early as possible.
A lender may have specific requirements for dealing with a shortfall, and you may need to provide additional funds before settlement can proceed.
This should never be left until the day of settlement.
Does the buyer need to know that I have a mortgage?
A mortgage is recorded on the title and forms part of the title information for the property.
A Victorian Section 32 Vendor Statement includes information about matters affecting the property, including mortgages. The Section 32 must be accurate and complete and is normally prepared before the property is offered for sale.
The existence of a mortgage does not mean that the property cannot be sold.
The important issue is that the mortgage is properly dealt with as part of the conveyancing and settlement process.
What happens on settlement day?
Settlement is the stage where the buyer pays the balance of the purchase price and the transfer of ownership is completed.
For a seller, settlement generally involves your conveyancer coordinating with the buyer’s representative and your lender.
Your lender will provide the amount required to discharge the mortgage.
The settlement funds are then distributed according to the settlement statement and the lender’s requirements.
The mortgage discharge and transfer of the property are dealt with through the electronic settlement process where applicable.
Consumer Affairs Victoria explains that property settlement is normally conducted between the parties’ legal representatives or conveyancers and lenders.
What if I am buying another property at the same time?
This is very common.
You may be selling your existing home and using the proceeds to help purchase your next property.
In this situation, your conveyancer may need to coordinate two transactions and, where possible, arrange the settlements so that the sale and purchase work together.
For example:
Sale of existing property → Mortgage discharged → Remaining proceeds available → Purchase of new property
The timing needs to be carefully considered because a delay with your sale could potentially affect your ability to complete your purchase.
If you are planning to buy another property, tell your conveyancer as early as possible.
What happens if I have more than one mortgage or loan?
Some property owners have more than one loan secured against the property.
For example, you may have:
- A home loan
- An investment loan
- A line of credit
- Another facility secured against the property
You should tell your conveyancer about all loans and securities associated with the property.
The lender will determine the amounts required to release its security at settlement.
Do not assume that paying off your main home loan automatically deals with every security registered against the property.
Can I sell an investment property with a mortgage and a tenant?
Yes, a mortgaged investment property can generally be sold.
However, there may be additional issues to consider if the property is currently rented.
You should tell your conveyancer and real estate agent about the tenancy arrangements.
The sale may need to take into account:
- The existing tenancy
- Whether vacant possession is required
- Rent adjustments
- Bond arrangements
- Outgoings
- The buyer’s rights under the contract
The contract should clearly reflect the agreed terms regarding possession and the tenancy.
What happens to the mortgage after settlement?
Once the lender’s required amount has been paid and the discharge is registered, the mortgage is removed from the title.
Land Use Victoria confirms that registration of a discharge of mortgage removes the mortgage reference from the title.
Your lender will also deal with the closure or adjustment of the relevant loan account according to its own procedures.
Your conveyancer can confirm the settlement outcome and provide you with the relevant settlement information.
What should sellers do before settlement?
If you are selling a property with a mortgage, it is a good idea to:
- Tell your lender that you are selling.
- Start the mortgage discharge process as early as possible.
- Give your lender’s details to your conveyancer.
- Tell your conveyancer about any other loans or securities over the property.
- Check that your conveyancer has your correct bank account details for the settlement proceeds.
- Make sure any outstanding property information or documents have been provided.
- Keep an eye on the proposed settlement date.
- Advise your conveyancer promptly if anything changes.
Starting early can help reduce the risk of last-minute settlement problems.
How can Prox Conveyancing help?
Selling a property with a mortgage involves more than simply signing the contract and waiting for settlement.
At Prox Conveyancing, we can assist with the conveyancing process from contract through to settlement, including coordinating the discharge of your existing mortgage with your lender.
We can help with:
- Reviewing the contract and Section 32
- Preparing the sale conveyancing
- Communicating with your lender regarding the mortgage discharge
- Preparing settlement figures
- Checking adjustments and settlement amounts
- Coordinating with the buyer’s conveyancer or solicitor
- Coordinating with the lender for settlement
- Arranging electronic settlement
- Confirming completion and distribution of settlement funds
If you are planning to sell a Victorian property with an existing mortgage, contacting your conveyancer early can make the process much smoother.
Frequently Asked Questions
Can I sell my house before paying off the mortgage?
Yes. You can generally sell a property while a mortgage remains registered over it. The mortgage is usually discharged as part of settlement using the sale proceeds.
Do I need to tell my bank before selling?
Yes. You should contact your lender and start its mortgage discharge process as soon as you know you are selling.
Does the mortgage have to be paid off before settlement?
The mortgage generally needs to be discharged as part of settlement. The lender will provide the amount required to release its security.
What happens if the sale price is not enough to pay the mortgage?
You may have a shortfall. You should contact your lender and conveyancer as early as possible to discuss what is required to complete settlement.
Will I receive the full sale price after settlement?
No. The sale proceeds are used to pay the mortgage payout and other applicable settlement amounts and adjustments. The remaining balance is paid to you.
Can I sell an investment property with a mortgage?
Yes. However, if the property is rented, the tenancy and possession arrangements also need to be considered as part of the sale.
Should I arrange the mortgage discharge myself?
You will generally need to follow your lender’s process for requesting a discharge, but your conveyancer can coordinate with the lender as part of the settlement process.
About the Author
Meet Sally
Sally Kwok is a Licensed Conveyancer and the Director of Prox Conveyancing. With more than 16 years of experience in the conveyancing industry, she is committed to helping buyers and sellers navigate Victorian property transactions with confidence. Sally is passionate about providing clear communication, practical guidance and personalised service throughout every stage of the conveyancing process.
👉 Learn more about Sally on our About page.
About Prox Conveyancing
Prox Conveyancing is a Victorian conveyancing practice providing professional conveyancing services for residential property transactions across Victoria. We assist buyers, sellers, investors and families with a wide range of conveyancing matters, delivering personalised service, transparent communication and professional support from contract through to settlement.
👉 Learn more about Prox Conveyancing on our About page.
This article provides general information only and is not legal advice. Every property transaction is unique, and the information above may not apply to your particular circumstances. If you require advice about your specific situation, please contact a qualified legal professional or licensed conveyancer.