Fully owning a home is a significant milestone for many Ontarians. It is easy to assume you are done with your mortgage when you make the final payment, but that is not the case. To end your mortgage term, you must go through a process known as mortgage discharge. You can also go through this process if you switch lenders or decide to sell your property before your mortgage term ends. We have collected some information about discharging a mortgage and how it works.
What is a discharge of a mortgage?
The majority of Ontarians require a mortgage to purchase a house. A mortgage allows the lender to have a lien on your home in exchange for covering the majority of the purchase price. The lien allows the lender to recoup their loss and take possession of your home if you default on making mortgage payments. Lenders can also foreclose your property to recover the amount you owe on the mortgage. It is easy to assume that the lien will be automatically removed once you have paid your mortgage in full. However, this is not the case. You need to go through a formal procedure known as a mortgage discharge to remove the lender’s lien on the property officially. You attain full possession of your property after this process has been completed. Discharge of a mortgage also happens when you change your mortgage term, whether natural or prompted by the borrower. Ontarian homeowners usually go through several mortgage discharge processes while paying off their property loans.
How does the mortgage discharge process work?
Discharging a mortgage usually begins when you notify the lender of your intention to start the process. For example, once you make your last mortgage payment, you should reach out to your lender and request a confirmation of full payment. After which, you should contact a lawyer or a notary and have them coordinate with the land registry office, which governs official property titles. Your agent will send them all the details, including the confirmation you received from the lender, and they will process the change in ownership while removing the lender’s lien on your property.
Is there a mortgage discharge fee?
Yes, there is a fee associated with the mortgage discharge process. Most lenders will automatically add this fee to your statement after your last payment on your final mortgage term. The mortgage discharge fee is also listed on the statements you will receive from your previous lender when you switch lenders. The statements will also confirm the last payment made before renewing the mortgage term.
In addition to the mortgage discharge fee, you will incur additional costs for hiring a lawyer or a notary. If you decide to break your mortgage early to switch to another lender or sell your house in the middle of your mortgage term, you will also be charged a penalty fee. Depending on the circumstances, a mortgage discharge process can become costly.
Is it worth applying for a mortgage discharge?
Whether or not a mortgage discharge is worth the fees that come with it depends on the homeowner’s financial situation. When you finish your mortgage term or renew it, paying this fee is a natural part of the homeownership journey. However, if you switch lenders mid-term, you have to pay the mortgage discharge fees and the penalties that accompany breaking a mortgage. Consider the returns versus cost before you make a decision. If you do not have excess funds to cover the costs, it might be worth postponing the switch until your mortgage term ends, so you only pay the mortgage discharge fee. A mortgage discharge is a standard part of your mortgage and homeownership journey.
If you are looking to switch lenders, call us to talk to one of our advisors.