Mortgage Discharge Explained: Everything You Need to Know

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Overview of Mortgage Discharge In Canada

If you took a mortgage to buy your house, you might not know that you do not outrightly own your property. The lender has an interest and can foreclose on the property if you do not abide by the terms of your mortgage agreement.

A mortgage discharge is a legal process of removing any claim or lien on your property, making it entirely your own.

What Is A Mortgage Discharge?

If you bought your house with a mortgage loan, there would be an interest or charge registered by the lender with the Land Registry against the property.

The mortgage contract gives your lender the legal right to take possession of your house if you fail to fulfill the obligations outlined in the mortgage contract. Your responsibility in this agreement includes paying the mortgage loan on time and maintaining the home.

Paying off your mortgage loan does not automatically pass on the absolute rights of the property to you. The lender has to discharge its interest on the property. The process to remove the lender’s interest on your house is called mortgage discharge and requires your involvement.

When Should You Discharge A Mortgage?

Mortgage loans are long-term commitments. It is unlikely that you are thinking of the process of discharging the mortgage loan on day one. But some circumstances will warrant you to discharge claims on the property, not necessarily at the end of the loan term.

There are a few circumstances under which a mortgage is discharged:

The mortgage loan is completely paid off
You are looking into selling your property
You’ve changed lenders

Below, we’ll explore why a mortgage discharge is essential in each situation.

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Mortgage Loan Is Paid Off

You must go through the mortgage discharge process to remove the lender’s claim to your property once you have paid off the mortgage loan. The lender will provide you with a letter confirming that your mortgage is paid off. This letter will help start the mortgage discharge process.

Selling Your House

Selling your property will require you to transfer the property’s ownership and title to the new owner. As part of the process, your lawyer will discharge your lender’s interest on the house so that the new owner’s lender can register its interest.

Your outstanding mortgage balance will typically be paid as part of the purchase transfer process. Only after that is done and confirmed by your lawyer will the lender go ahead to discharge its lien on the property.

Changing Lenders

When you choose to move your loan to a new lender either by refinancing or renewing your mortgage, you will need to discharge your current lender’s interest on the property so that the new lender can register its claim.

Your lawyer will have to complete the discharge process to remove the existing lender and register the new lender on the property’s title.

Mortgage Discharge Process In Canada

To discharge a mortgage, you need to get the right professionals. A licensed lawyer can only discharge a mortgage since a mortgage discharge is a legal process that releases the mortgage lien from a property.

You can request a mortgage release letter from your lender if your mortgage loan is completely paid off. This letter will state that you have paid off your mortgage in full.

Next, pay the lender discharge fee at this time as well.

Your real estate lawyer will then proceed to witness the discharge of the mortgage lien on your property.

The mortgage discharge process involves:

You
Your mortgage lender
The provincial land title registry office
A licensed real estate lawyer

In Canada, mortgage discharge processes vary by province or territory. Check with your local experts to learn more about the process in your area.

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Steps To Discharge A Mortgage In Canada

Notify your lender: Let your lender know of your intention to discharge your mortgage. Your lender will issue a Pay-Out Statement outlining the mortgage loan balance, prepayment penalty (if any), and the discharge fee.
Complete the Discharge form: With the help of your lawyer, complete and return the discharge form to your lender.
Mortgage Discharge Registration with the Land Title Registry: Assuming all your documents are correct, your lender will lodge the discharge request to the Land Title Registry office. The land registry office will remove the lender’s rights to the property.

Will, I Be Charged A Penalty If I Discharge My Mortgage?

You are likely to pay the penalty if you choose to discharge your mortgage before the end; for example, if you switch lenders and still owe on your mortgage.

A mortgage term is a time you choose to lock in your mortgage contract with a specific lender. Your mortgage term is different from an amortization. Amortization is the stated time it will take to pay off your mortgage to pay the required monthly mortgage payments. A mortgage contract might be for a 5-year fixed-rate term and amortized over 25 years.

Mortgage Discharge Fees

Mortgage discharge fees vary from lender to lender.

As explained above, your lender may charge you a fee if you request to discharge the mortgage before the end of the contract term.

Lenders are free to set discharge fees, but they must follow restrictions laid out in the Mortgages Act. As long as they comply with this act, they are free to set their rates.

Some lenders don’t charge any mortgage discharge fees at all.

In addition to the standard mortgage discharge fee listed by your lender, you may face additional fees depending on the circumstances surrounding your discharge

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Mortgage Discharge Explained: Everything You Need to Know

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In This Article

Overview of Mortgage Discharge In Canada

What Is A Mortgage Discharge?

When Should You Discharge A Mortgage?

Shop Across 25+ Lenders For Your Best Mortgage Deals

Mortgage Loan Is Paid Off

Selling Your House

Changing Lenders

Mortgage Discharge Process In Canada

Shop Across 25+ Lenders For Your Best Mortgage Deals

Steps To Discharge A Mortgage In Canada

Will, I Be Charged A Penalty If I Discharge My Mortgage?

Mortgage Discharge Fees

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