Selling Your Home in Australia What You Need to Know

Introduction

Selling your home in Australia can seem daunting, especially if you still have a mortgage hanging over your head. However, it is entirely possible to sell your house even if you have an unpaid loan balance on your existing mortgage. In this article, we will explore the process of selling a home with a mortgage in Australia and discuss the various options available to homeowners.

Can I Sell My House with a Mortgage in Australia?

The short answer is yes, you can sell your current home even if you still have an outstanding loan balance on your mortgage. However, it is important to consider the financial risks involved and to allow some time to pass before selling your home. This will give you the opportunity to cover the fees associated with the home buying process, such as conveyancer fees, valuation fees, and stamp duty.

How Do I Sell My House with a Home Loan?

If you still have money owing on your home loan, there are two main methods to selling your house: mortgage discharge and loan portability. The best option for you will depend on your financial situation and whether or not you have lined up a new mortgage for your next home.

Mortgage Discharge

A mortgage discharge involves breaking your mortgage with your current lender, allowing you to take out a new home loan with a different lender. To initiate a mortgage discharge, you must contact your lender and request it. They will provide you with a Discharge of Mortgage form, which you will need to submit to your lender. The lender will then register this with the Land Titles Office.

During this process, you will receive a statement detailing your remaining loan amount, discharge fees, and any break costs that may apply. It’s important to note that a mortgage discharge can be similar to paying off your mortgage early and may incur additional break fees, especially if you have a fixed-rate loan.

The process of mortgage discharge can take several weeks, so it is advisable not to rush it. Once you receive payment from the new homeowner, your lender will deduct the amount they are owed from the sale price. The property title can then be transferred to the new owner, free from any existing legal ties. At this point, you can consider moving into temporary accommodation while you search for a new home, explore refinancing options with a new lender, buy a property outright, or explore other suitable options.

Loan Portability

Loan portability is another option if you want to move your mortgage to a new property. This option allows you to keep your lender and home loan details the same, without the need to close out your mortgage with one lender and start fresh with another. Loan portability can be a simpler option, especially if you have a competitive low-interest rate home loan or a fixed-rate loan where break fees are not worth it. Your lender may also prefer this option as it keeps your business with them, and they may offer you a lower interest rate in exchange.

However, loan portability may require you to align the settlement date of your new home purchase with the close of the property sale. This can be challenging, particularly if there are delays in processing documentation or fees from the lender, bank, conveyancers, or real estate agents.

Bridging Loans: Buying a New Home Before Selling Your Old Home

In some cases, homeowners may find themselves in a situation where they want to buy a new property before selling their current home. This can be challenging, as a significant portion of their equity is tied up in their existing mortgage. In such situations, a bridging loan can provide a solution.

A bridging loan is a short-term loan that helps bridge the financing gap when you want to buy a new property before selling your first home. This type of loan is particularly useful when the perfect home becomes available before you have sold your current home or if you want to avoid the hassle of finding temporary accommodation between homes, especially in Australia’s competitive rental market.

To obtain a bridging loan, you will need to provide evidence of your financial situation. This may include a statement of your loan-to-value ratio (LVR) for your current home loan to demonstrate your equity. Some lenders may also require a contract of sale for your current property.

It’s important to note that bridging loans generally have higher interest rates than standard home loans and must be repaid within 12 months. Additionally, they may come with various fees, so it is essential to consider the comparison rate to get a more accurate reflection of the overall interest rate considering fees.

While a bridging loan allows you to move directly into your new home once you have sold your old home, there are a few things to keep in mind. Firstly, you will need to pay off both your bridging loan and the repayments on your current mortgage. If you fail to sell your current home within the one-year term of the bridging loan, you will be responsible for paying two mortgages simultaneously. Additionally, you may need to sell your property for a lower purchase price than anticipated to sell it within the required timeframe. Lastly, you may need to bid higher on a new home to convince the owner to hold it while you settle the bridging loan.

What If I Owe More on My Home Loan Than My Property Value?

In some cases, homeowners may find themselves in a situation where they owe more on their home loan than the current value of their property. This is known as negative equity and can be caused by drops in the property market or overpaying for a property without waiting for equity to build up.

Having negative equity can pose a problem when selling your home, as the final sale price may not be enough to cover your remaining mortgage, including any discharge fees and agent fees. In such cases, your lender may request that you draw down on your savings account, sell other assets, or provide bank statements to demonstrate your financial situation.

If you are unable to come up with the necessary funds to pay off your home loan, mortgage insurers may become involved. They may pay out any shortfall to the lender after the property sale. This is why low deposit loans, with an LVR below 80%, require borrowers to pay Lender’s Mortgage Insurance.

Conclusion

Selling your home in Australia while still having a mortgage is indeed possible. Whether you choose to go through a mortgage discharge, opt for loan portability, or consider a bridging loan, it is important to carefully assess your financial situation and weigh the pros and cons of each option. By understanding the selling process and exploring the available options, you can make informed decisions that best suit your needs and goals.