Selling Your House in Australia

Introduction

We all dream of being mortgage-free, but for most people, it takes around 25 years to pay off a home loan. This means that when it comes time to sell your house, chances are you will still be making repayments. It may seem tricky to list your property on the market when you technically co-own it with the bank, but it’s surprisingly simple to navigate the process of selling a mortgaged property in Australia. Even if you haven’t made much progress in paying off your loan, you still have options.

In this guide, we will walk you through the steps of selling a property with a mortgage in Australia. We’ll explain how the process works, including how to inform your lender, filling out necessary forms, and completing the transaction. We’ll also discuss the possibility of moving your existing mortgage to your next home, as well as what to do if you sell your house for less than the mortgage.

How Can I Sell My House While Paying a Mortgage?

Australians are holding onto their homes longer than ever, with the average length of ownership being just over 11 years for houses and nine and a half years for units (according to the latest CoreLogic figures). Selling a home with a mortgage is common, and the first step is to inform your bank or lender about your plans to sell. They hold the ‘Certificate of Title’ on your home, which means they have a formal interest in it and the authority to sell the property if you default on your repayments. When you decide to move, they will want to be paid back in full.

To begin the process of selling your house with a mortgage, you will need to fill in a Discharge of Mortgage form, which can usually be found on your bank or lender’s website. This form will ask for details such as the borrower’s name, guarantor’s name, solicitor’s name, home loan account numbers, and line of credit. It’s important to read all the information on the form and understand it before lodging it, as it gives the bank the authority to start the process. Keep in mind that it can take between 14 and 21 days for a mortgage to be discharged, so factor this into your timeline. You will still be responsible for making mortgage repayments until the sale is finalized.

Obtaining a settlement or closing statement is also a good idea, as it outlines the closing costs and gives you an idea of any profit you may make from the sale. Your bank will arrange with your solicitor or conveyancer for the outstanding amount on your mortgage to be paid at settlement, which will be taken out of the proceeds of your sale price. Your lender will also register the discharge of the mortgage with the Land Titles Office in your state or territory, indicating that the property is free of any restrictions that may prevent a sale. Keep in mind that discharge fees can range from $0 to $550.

Can You Keep Your Existing Mortgage and Move to a New Property?

Moving house doesn’t necessarily mean moving banks and going through the process of applying for a new loan. Many home loans in Australia have “portability,” which means they can be transferred onto the next property. This option allows for faster turnaround times and avoids potential upfront fees associated with applying for another loan. It also allows you to keep your current loan details, rates, repayments, and set-ups.

To keep your existing mortgage and move to a new property, you will need a “substitution of security.” This process removes the mortgage from your current property and carries it over to the new home. Your lender may also offer better interest rates to retain your business, or you may decide to refinance your mortgage when you move. However, if you plan on paying off a significant portion of your mortgage, be prepared to incur additional fees from your bank. These fees, known as “break costs,” apply to fixed-rate mortgages and vary depending on the amount owed and the length of the loan. It’s best to check with your lender to see if the break costs are high enough to dissuade you from switching lenders.

What Happens If I Sell My House for Less Than the Mortgage?

While it’s uncommon for the outstanding balance on a mortgage to be higher than the value of a home, it does happen. Factors such as purchasing at the top of the housing cycle, heavily redrawing on your home loan, paying too much for a property, or securing a property with a low deposit can put you at risk of having “negative equity.” Additionally, brand-new homes and apartments are often at risk because they tend to sell for a premium.

If you sell your house for less than the mortgage, any shortfall in paying off your mortgage on settlement will need to be made up from personal savings or by selling assets, such as a car. If you are unable to make up the difference, your lender will ask your mortgage insurer to cover the difference and will attempt to recoup the outstanding debt from you.

Can I Buy Another Property Before Selling My Existing Home?

As most of your equity will be tied up in your current home, it can be tricky to buy another property before selling. However, there are a few options that can make it possible, depending on market conditions:

1. Contingent Offer: This option involves agreeing to buy a home on the condition that you are unable to settle until your current home has sold. However, sellers are less likely to accept this option.
2. Bridging Loan: A bridging loan is an additional short-term loan taken on top of your existing mortgage. It provides an additional 6 to 12 months to sell your property. The loan comprises your existing home loan, the purchase price of the new property, and associated costs such as stamp duty, legal costs, and lender fees. However, this option can be riskier in a falling market.

What Other Fees Should You Factor In?

In addition to banking fees, there are other costs to consider when selling your house in Australia. These include conveyancing, marketing, and agent fees or commissions. Budget around $800 to $2000 to cover the legal costs of the sale, which are handled by a conveyancer or solicitor. The costs may vary depending on the state or territory you reside in.

Real estate agents may ask for a flat fee or operate on a tiered commission structure. The details of the fee or commission arrangement will be discussed and agreed upon before signing any contracts. Your agent will also be able to advise you on a marketing budget, which typically includes digital brochures, real estate portal listings, social media posts, professional photography, drone footage, signage, copywriting, and advertising.

Conclusion

Selling a house with a mortgage in Australia is a common practice, and it’s important to understand the process and your obligations to your lender. By informing your bank or lender of your plans to sell, filling out the necessary forms, and completing the transaction, you can successfully sell your property even if you still have a mortgage. Additionally, you have the option to move your existing mortgage to a new property, allowing you to upgrade, downsize, or leave the market altogether. Just be aware of any fees and potential risks involved, such as negative equity or break costs. With the help of a trusted real estate agent and proper planning, you can navigate the process of selling your house in Australia and take steps towards achieving your financial goals.