Selling a Queensland home with a mortgage: how the release works

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Kooky

Builder of Shaka, the payment router that pays every agent their commission on closing date.

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Many Queensland homes are sold while they are still mortgaged. The owner does not pay the loan off first and then sell. The sale pays the loan off, in the same few minutes in which the buyer's money arrives, and the lender gives up its claim on the property at that moment and not before. It works smoothly in the great majority of sales, which is why sellers rarely think about it until their solicitor asks whether they have sent the bank its form.

That form starts a process with its own timetable, its own costs and one or two ways of going wrong. This guide follows it from the day a contract is signed to the day the title shows no mortgage. It covers what a release of mortgage is, how a seller asks for one, how much notice lenders want, what goes into the payout figure, what happens in the electronic settlement, and the less common cases: fixed-rate loans, more than one loan on the property, and a price that does not cover the debt. It describes how the process generally works. A seller's own loan contract and lender set the details, and those are the documents to check.

NAB discharge authority form and HSBC Australia discharge guidance for the notice periods; Titles Queensland for the form and the service time, in working days.

Why the mortgage has to come off the title

A mortgage is more than a debt. It is registered on the title to the property, and it gives the lender rights over the land itself until the debt is repaid. Anyone who orders a title search for a mortgaged home sees it there, listed with a dealing number and the lender's name.

A buyer is paying for the home free of that claim. The buyer's own lender, if there is one, will insist on being the first and only mortgage on the title. So the seller's side of every ordinary sale includes a promise that the existing mortgage will be removed at settlement, and the buyer's solicitor will not hand over the price unless the document that removes it is ready to be lodged.

The seller's lender, for its part, will not give up its security until it is paid. The whole design of settlement exists to resolve that standoff: the money and the documents change hands at the same instant, so that neither side has to trust the other.

What a release of mortgage is

The document that removes a mortgage from a Queensland title is a release, lodged on the registry's Form 3. People also call it a discharge, and banks use that word for their own side of the process. The two terms describe the same event.

Titles Queensland's guide to registering a release sets out the essentials. The release is signed by the mortgagee, which is the lender, not by the home owner. If the mortgage was transferred from one lender to another at some point, it is the current mortgagee that signs. The form identifies the property and quotes the dealing number of the mortgage being released.

Two consequences follow for a seller. The first is that the seller cannot produce the release alone. Only the lender can, and only when it is satisfied it will be paid. The second is that a mortgage does not disappear from the title by being paid out. It disappears when the release is registered. The registry's guide urges that a release be lodged promptly once it has been signed, warning that a lost or destroyed form can mean extra cost and delay in later dealings with the property. In a sale that risk is small, because the release is lodged as part of settlement. It is larger for owners who paid off a loan years ago and never checked that the mortgage was taken off the title, a point that sometimes surfaces only when they come to sell.

Asking the lender: the discharge authority

The seller's part begins with a request. Lenders call it a discharge authority or discharge request, and each has its own form.

The published guidance of two banks shows what the request involves. HSBC Australia says a discharge is needed when a property is sold and that the request can be made once the contract of sale is signed. Its form must be signed by all borrowers and all mortgagors. That second word matters: a person who is on the title but not on the loan, or the reverse, still has to sign. National Australia Bank's discharge authority form says the same thing in other words, requiring the signatures of the property owners and the borrowers where they differ.

The form asks for the details of the sale and of whoever is acting for the seller. NAB's form lets the customer nominate a representative, such as a solicitor, conveyancer or broker, to deal with the bank about the discharge. In practice the seller's solicitor often supplies the form, lodges it and follows it up, but the signatures are the seller's and cannot be delegated without a formal authority.

The form also asks what should happen to the money left over. NAB's form provides for surplus funds, after the loan, the bank's fees and government charges are deducted, to be paid according to the customer's instructions. A seller who is buying another home on the same day will direct those funds differently from one who simply wants them in a savings account.

Lead times: the lender's clock and the contract's

The most common way for a release to cause trouble is timing. A contract fixes a settlement date. A lender takes a certain time to prepare. If the second is longer than what remains of the first, settlement is at risk.

Lenders publish different notice periods. NAB's form asks for at least 10 business days to process a discharge request in time for the proposed settlement date. HSBC's guidance says that once the signed request is received it could take a minimum of 21 business days to finalise the discharge, and that incomplete forms or missing details can add to that.

Business days are not calendar days. Twenty-one business days is more than four weeks, and longer still if a public holiday falls inside the period. A seller who signs a contract with a 30-day settlement and posts the discharge form in the second week has left a lender on the longer timetable with too little time.

The answer is in the order of events. The lender's notice period is known before the home is even listed: it is in the lender's published material or a telephone call away. A seller can find it out when preparing to sell, and take it into account when a buyer proposes a settlement date. Once a contract is signed, the form goes in at once.

Why does it take so long? The lender has to locate the loan and any linked accounts, confirm who must sign, calculate a payout figure for a future date, prepare the release, and book its part in the settlement. Where a home secures more than one loan, or the title has changed since the mortgage was taken, there is more to check.

The payout figure and what is in it

Before settlement the lender issues a payout figure: the amount it requires on the settlement date to release the mortgage. It is not the balance shown in the seller's banking app, and the difference surprises people.

Moneysmart, the Australian Government's financial guidance service, describes a discharge or termination fee as a fee charged when a loan is closed. NAB's form says a discharge fee of $350 may apply, covering the preparation of documents, attendance at settlement and lodgement, and that government fees vary by state and are charged on top. HSBC says its fees to release a security vary with the lender and the state or territory and are set out in the loan contract. The amount for a particular loan is in that loan's own documents.

The registry's fee is separate. Titles Queensland charges for each dealing it registers, under a fee list that is updated on 1 July each year, and directs users to its online calculator for the amount.

Because interest accrues daily, a payout figure is only good for the date it was calculated for. If settlement moves by a few days, the figure is recalculated. This is routine, but it is one more reason a delayed settlement creates work on every side.

Settlement day in the electronic workspace

Queensland settlements are now electronic for almost all represented parties. Titles Queensland's requirement for electronic lodgement began on 20 February 2023 and covers the main instruments in a sale: the transfer, the buyer's new mortgage and the Form 3 release, among others. The registry names two approved electronic lodgement network operators, PEXA and Sympli, and says the subscribers to these networks are legal practitioners and financial institutions.

HSBC's guidance describes the sequence from the lender's point of view. The seller's legal representative creates a case, called a workspace, in the electronic system. The parties to the sale, including both lenders, join it and complete their details, and a settlement date and time are accepted by everyone involved.

In the workspace, each party's contribution is prepared in advance and locked in. The buyer's side loads the purchase money. The seller's lender enters its payout figure and prepares its release. The seller's solicitor sets out where the remainder goes. At the appointed time the system checks that every document is signed and every amount balances. If so, the funds are distributed and the documents are lodged with the registry together: the release of the old mortgage, the transfer to the buyer and the buyer's new mortgage, in that order.

The seller is not present for any of this and does not need to be. What the seller sees is a message from the solicitor saying that settlement has taken place, and shortly afterwards the balance of the price in the nominated account.

After settlement

Three things happen in the days that follow.

The registry processes the documents. Titles Queensland's guides give a service time of three to five working days for most correctly prepared dealings. Once registration is complete, the title shows the buyer as owner and the buyer's lender as mortgagee, and the seller's mortgage is gone.

The loan accounts close. NAB's form notes that for accounts being closed, the bank can cancel the right to redraw, and any credit limit, from 6:00 am on the business day before settlement. That is a detail to plan around: a seller counting on redrawing from the loan on settlement morning, to pay removalists for instance, may find the facility already shut. Money needed in the final days is better moved earlier. Direct debits and salary credits linked to the loan or its offset account need a new home for the same reason.

The surplus arrives. After the payout figure and any other amounts due at settlement are met, the remainder is paid as the seller instructed. The agent's commission and marketing costs are usually dealt with separately, from the deposit held in the agent's trust account.

Fixed-rate loans and break costs

A variable-rate loan can generally be repaid at any time. A fixed-rate loan is a different bargain: the borrower agreed to pay a set rate for a set term, and ending it early can carry a charge.

Moneysmart says a borrower on a fixed-rate loan may need to pay a break fee on leaving it. HSBC's guidance puts the contrast plainly, noting that paying off a fixed-rate loan may incur break costs. How the cost is worked out is a matter for each loan contract, and it can change from day to day, because it depends on how interest rates have moved since the rate was fixed and how long the fixed term has left to run.

For a seller, the point is to ask early. A break cost is known only when the lender calculates it, and an indicative figure requested before the home is listed tells the seller whether it is a minor line or a significant one. It may be nothing. It may be enough to affect what the seller can accept, or when it suits them to settle. Either way it belongs in the arithmetic before a price is agreed, not after.

More than one loan, and other names on the title

A release is simple when one loan is secured by one property with one lender. Sales are not always that tidy.

A home may secure several loans with the same lender: the original home loan, a later top-up, a line of credit. The lender's payout figure will cover all of them, because its security covers all of them. A seller who thinks of only the main loan will find the surplus smaller than expected.

A home may also secure someone else's borrowing. Parents who guaranteed a child's loan using their own house as security are in this position, and HSBC lists removing a guarantor among the situations that require a discharge. The lender will not release the parents' property unless the guaranteed loan is repaid, reduced or re-secured to its satisfaction, and that negotiation needs to start well before the parents' sale.

There may be a second mortgage to a different lender, registered behind the first. Each mortgagee must give its own release, on its own timetable, and each must be paid from the proceeds in order of priority. A title search ordered at the start, which Queensland's seller disclosure rules require in any case, shows everything registered against the lot, and it is the place to find any surprises.

Finally, where a borrower has died or cannot act, the signature on the discharge authority comes from an executor or an attorney, and the lender will ask for evidence of that person's authority before it proceeds.

When the price does not cover the debt

In a rising market the sale price comfortably exceeds the loan. After a period of falling values, or where a home was bought not long ago with a small deposit, it may not.

The mechanics do not bend for this. The lender's release depends on the lender being paid. If the price, less the costs of selling, is lower than the payout figure, the lender is being asked to release its security for less than it is owed, and it can refuse. A seller in that position needs the lender's agreement before signing a contract, either to accept the shortfall on stated terms or to release the property while the remaining debt is repaid in some other way.

Moneysmart's guidance for borrowers in difficulty is addressed to this situation. It advises that it is better for an owner to sell the home themselves than to have a lender take possession and sell it, since the owner is likely to get a better price and avoids legal costs the lender would pass on. It says a borrower who decides to sell should tell the lender, who may ask for a copy of the agency agreement, the contract of sale and any advertisements. It also sets out the step before that: a borrower struggling with repayments can ask for a hardship arrangement, and the lender must respond within 21 days. The National Debt Helpline, on 1800 007 007, offers free financial counselling.

The common thread is that a lender is far easier to deal with before a contract than after one. A seller who suspects the figures will be tight should ask for a payout estimate before listing, so that the question is answered while there is still room to choose.

Keeping the loan and moving it

Selling does not always mean closing the loan. Some loans allow the security to be changed from one property to another, so that a seller who is buying again keeps the same loan and its rate. HSBC lists swapping a home loan between properties among the situations in which a discharge of the first property is needed.

The release on the home being sold happens as described above. What differs is that the loan survives, secured against the new home from the same day. This requires both settlements to be coordinated and the new property to satisfy the lender as security, and not every loan permits it. For a borrower on a fixed rate it can be a way of avoiding a break cost. It is arranged with the lender, well in advance, as part of the purchase.

The release is the one part of a sale the seller cannot perform alone. Everything about it goes better when the lender hears about the sale early.

Kooky, from Shaka

Kooky edits Queensland Estate and builds Shaka, the payment router he made for Queensland property professionals. One payment comes in, and every agent, agency and party in the deal receives their signed share on closing date.

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