Time to pop the champagne! You paid off your mortgage and met all the terms your lender asked like the responsible homeowner you are. The house is all yours now… right?
Table of Contents - Finance Corner: What You Need to Know About Discharging a Mortgage
Not so fast. Your lender put their name on that title too, and it will take a bit of work on your end to untangle yourself from that relationship. What you need is a mortgage discharge.
A mortgage discharge offers you the full freedom to own your home, but you need to understand what the process is and how it works first. Even if paying off your mortgage isn’t on the horizon for you, it’s important to be familiar with the mortgage discharge process for any future financial moves.
What is a mortgage discharge?
When you take out a mortgage from a lender to buy your house, the collateral you offer for paying back your loan is the property. In some situations, like failure to make payments or failure to maintain the home, the lender has a right to take your property because they essentially purchased the house on your behalf.
Once you’ve paid off your mortgage and met the terms of your agreement with the lender, your relationship isn’t necessarily ended. When you took out the mortgage, the lender registered a lien, or a charge, on your property. In some cases, you will need to take steps to discharge the mortgage and remove the lender’s legal rights to your property.
When should you discharge your mortgage?
If you’ve paid off your mortgage, met the terms and conditions and rightfully own your home, you will want to eliminate all ties with your lender to prevent any confusion. If you still owe for any related debts, like a home equity line of credit, you will want to pay that off first before beginning the discharge process. Once everything is paid you, your lawyer or a notary can discharge your mortgage.
Even if you’re nowhere near paying off your home, you still need to familiarize yourself with the mortgage discharge process. If you’d like to move to another lender who is offering a better deal, you’ll need to update your property’s title to reflect the new lender. You, your lawyer or your notary must first discharge the original lender before updating the property title. Your previous lender may charge a fee for switching to another lender, so be sure to ask your new lender if they will cover the cost of these fees plus any other costs associated with discharge.
You’ll also need a mortgage discharge when you’re selling your home. The discharge means your lender no longer has rights to your former property. If the new owner has an assumable mortgage as is taking over the mortgage you had on the house, a discharge is unnecessary.
Mortgage discharges also arise in instances of bankruptcy. With this type of discharge the borrower is released from the financial obligation and will not own the home when the bankruptcy is finalized. In this case, the court will order a mortgage discharge as part of the settlement and ownership will transfer fully to the lender.
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What costs are associated with discharging a mortgage?
The amount you pay to discharge your mortgage varies depending on your lender. Some provinces have regulations setting a maximum amount a lender can charge for a mortgage discharge fee. When the lender sets its fee, the cost could range from no fee to $400. All federally regulated lenders must disclose their fee; check your agreement before beginning the process.
Discharging a mortgage often requires a lawyer or a notary. Their professional services also come at a price, ranging from a couple of hundred dollars to a couple thousand, depending on their rates and the time required. Some provinces allow you to register the discharge yourself, but you may still need the documents notarized or signed by a professional.
How does the mortgage discharge process work?
There are three primary players in the mortgage discharge process: you (the homeowner), the lender and the provincial land title registry office.
First, you need to check with your lender that you are eligible to discharge your mortgage. Even if you’ve paid everything in full and met the terms and conditions, most lenders won’t confirm that you’re eligible for discharge unless you ask. Your lender may have a process for borrowers requesting discharge and may even prepare the necessary papers for you. The discharge paperwork will include information such as:
- The name of the lender
- The amount of mortgage discharged
- The original date of the mortgage
- The name of the person who took out the mortgage (likely you)
- The property’s address
- The date and signature of the lender, witnessed by a notary
The provincial land title registry office does just that – registers property-related documents and manages the title registry. Once you, your lawyer or your notary submit all the paperwork accurately, the land office will remove the lender’s charge on your property and update the title to reflect the change.
When you may not want to discharge your mortgage
Removing a lender’s name from your property title sounds like a big relief to homeowners. However, your house is a substantial asset that you can leverage for loans and other credit. If you plan to request a loan or line of credit with your current lender, you may not want to discharge your mortgage just yet so you can use your home as security. When you discharge your mortgage, you lose access to mortgage-related products like a home-equity line of credit. If you have more big financial moves ahead, you may wish to reconsider.
Mortgage lenders are like partners in your home purchase. You need to formally end the relationship when you’ve honoured your agreement or when the time is right. Whether you’re finally assuming full ownership of your home or ready to move on to the next house, make sure you take the final steps to accurately reflect who owns the property.
Discharge Of Mortgage
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