If you’re about to discharge the mortgage, just think about this – whilst it is a cause for celebration and you are now free from financial burden, it is also important to think ahead and perhaps hold the loan facility open.
In our experience, some homeowners make a big effort to pay off their mortgage and then discharge their mortgage without future consideration. Whilst this leaves them with the title deeds to the property and the lender having no security interest over the property, it also results in the loan facility being closed.
Once closed, your ability to redraw on the equity in your home is lost. This source of funds is no more and cannot be relied upon in cases of emergency or unforeseen events. If you need to generate cash quickly you will have to go through the full process of getting a new mortgage – new valuations, new bank fees and lots of time.
Benefits of not discharging a mortgage and keeping the loan facility open are:
- being able to access the equity in your home as a cheap and quick source of funds compared to having to sell other assets or refinance
- not having to go through the entire credit approval process again to secure a loan
- potential savings on having to pay “mortgage duty” for a redraw (other than for the purchase of residential housing which has been abolished).
In some circumstances it may be in your best interest to get rid of the loan facility by discharging the mortgage immediately, once you are able. The benefits in discharging a mortgage are:
- If you are a guarantor for the security of another person’s debt obligations, whether it be for a family member, friend or in a commercial dealing, and in the event of default by that party, the lender may enforce repayment of the loan against you. The easiest way for them to do this is to go after the property attached to your loan facility, even though you have paid out the facility. This is a very real occurrence, and is almost never foreseen by those who have not discharged their mortgage.
- If you have other borrowings – spouses’ credit card debt or your company’s loan for example, all are usually linked (by the bank’s broad contract wording) to any security the bank holds belonging to you.
Importantly, when considering whether to discharge a mortgage or not, consult one of our experienced lawyers.
Contact us and we will be able to assess your circumstances and provide clear and concise advice.