What is a mortgage discharge fee?

What is a mortgage discharge fee?

Put simply, discharge fees are a fee you might have to pay at the end of your home loan - whether that's because you've completely paid it off or you're refinancing and simply ending the loan with that lender.

They cover the administrative costs of discharging the loan. Discharge fees can also be called settlement fees (not to be confused with the settlement fees you pay at the start of the loan!)

How much do discharge fees cost?

Many lenders do not charge discharge fees, but for those who do the cost can vary from $150 to $400. These fees are what you’ll have to pay to get a hold of your title deeds.

Lenders can also charge what they refer to as ‘early discharge’ or ‘early termination fees’. You might have to pay this if you repay the loan amount completely within a stipulated timeframe, for example within the first five years. The flipside is that the law states that these charges cannot exceed the losses incurred by lenders owing to such early loan terminations.

The most important takeaway to remember is that if you feel these charges are excessive or unfair, don’t hesitate to lodge a complaint with your lender.

What are the big four banks' home loan exit fees?

• Westpac: $350
• CBA: $350
• NAB: $350
• ANZ: $160

What other exit fees are there?

Early termination fees (or break costs).

You might need to pay a fee if you end the loan before a specified time, like if you have fixed the loan for a certain number of years.

This fee is much more dependent on your loan factors and so it's hard to say how much they would cost. For example, the higher the loan balance you're repaying, the higher the fee is likely to be.

How much do early termination fees cost?

The cost of early termination fees, or break fees, depend on multiple factors like the original loan amount, outstanding balance, how much time remains on the fixed term and the prevailing interest rate. The higher the outstanding balance, the higher the break costs. The same applies with the remaining loan term.

When it comes to the interest rate, lenders compare the interest rate that you fixed at with other interest rates they have on offer. If your interest rate is lower, expect to pay break costs.

Break costs often come into the picture if you want to leave your home loan when there’s a better deal, or if you make too many additional repayments on your home loan. Even if you’re not leaving your loan to refinance, there are many reasons you might leave your home loan, such as moving overseas or interstate, accepting sudden profitable offers from buyers or receiving a substantial increase in income

When do you have to discharge a mortgage?

Home loans are a long-term proposition, and when you take one out it's doubtful you're already thinking about the logistics of discharging it. However, there are a variety of circumstances that might require you to discharge a home loan, and not all of them fall at the end of the loan term.

1.) If you're repaying your mortgage in full

Once you've paid off your entire home loan, you'll have to go through the formal process discharging the mortgage. This includes if you have a split home loan and are paying off one part of it.

2.) If you're selling your home

When you're selling your home, an existing mortgage will be listed on your title as an encumbrance. That means it has to be discharged before any settlement can occur. If you're selling your home but want to keep your home loan for your next property, you can apply for what's known as a substitution of security. This removes the mortgage from the title of the property you're selling, and adds it to the property you're purchasing.

3.) If you're refinancing with a different lender

When you refinance, you're discharging a mortgage one home loan facility in order to open another, or with one lender in order to open a new home loan with a different lender. This will require a formal discharge of mortgage.

How do I discharge a mortgage?

Discharging a mortgage is a fairly straightforward process:

1. Notify your lender

Notify your lender to discuss your plans to discharge your mortgage. Your lender will then ask you to complete a Discharge Authority form. Most lenders either have the form on their site, or have an online portal for requesting the form.

2. Complete and return the Discharge Authority form

Next, complete the form and return it to your lender. If you're selling your property, ensure you complete the form in a timely manner. It will take the lender at least 10 business days to process your request. You might want to think about completing the form in person at a branch so your lender can help you through the process.

3. Register your discharge and Certificate of Title

If you've repaid your home loan, the lender can either register your Discharge of Mortgage at the Land Titles office on your behalf, or they can send you both the Discharge of Mortgage and Certificate of Title to register at the Land Titles office.

How can I avoid exit fees?

Not all lenders charge exit fees, so the best way to avoid them is by choosing a lender which doesn't offer them!

Aside from that, if your lender is charging a discharge fee it's likely you'll have to pay it.

If you're refinancing, you might be able to speak to your lender and bargain for a better rate with them. That way, you still get your lower rate and no discharge fee. Before you bargain with your bank, make sure you study existing options on the market so you know exactly what you're up against.

There are some banks that may have conditions you can meet in order not to pay exit fees, for instance, if you have enough security.

If you’ve decided that you want to pay off your loan ahead of time or that you want to switch to a new loan, establish just how much you’ll have to pay as part of the process after accounting for all exit and early repayment fees. If you’re looking for refinancing options, compare the rates of existing loans and find out if you’ll actually save by making the switch. If you’ll save money, go for it.

Frequently asked questions about mortgage discharge fees

• How much are discharge fees?

  Discharge fees vary from $150 to $400 and this is what you'll have to pay to get a hold of your title deeds. Lenders can also charge what they refer to as 'early discharge' or 'early termination fees'. You might have to pay this if you repay the loan amount completely within a stipulated timeframe, for example within the first five years. The flipside is that the law states that these charges cannot exceed the losses incurred by lenders owing to such early loan terminations. The most important takeaway to remember is that if you feel these charges are excessive or unfair, don't hesitate to lodge a complaint with your lender.

• What are the big four banks' home loan exit fees?

  • Westpac charges $350 in discharge costs for their Rocket Repay Home Loan
  • CBA charges a discharge fee of $350 for their Standard Variable and Base Home Loans but do not charge a fee for their No Fee Home Loan.
  • NAB charge $350 in discharge settlement fees for their Tailored Home Loan
  • ANZ charge $160 in settlement fees (in addition to other fees to access government records and to lodge paperwork).

• How expensive are exit fees?

  Just how much you have to pay in the form of exit fees depends on the kind of loan you have. In any case, expect to pay discharge fees, which lenders charge to cover administrative costs (see the table below). If you have a fixed rate loan and want to exit early, you can expect your lender to charge a break fee.

  Break fees, also known as break costs or early repayment fees, depend on multiple factors like the original loan amount, outstanding balance, how much time remains on the fixed term and the prevailing interest rate. The higher the outstanding balance, the higher the break costs. The same also applies with the remaining loan term. When it comes to the interest rate, lenders compare the interest rate of loans with the prevailing interest rate-if the prevailing interest rate is lower, expect to pay break costs.

  Break costs often come into the picture if you want to leave your home loan when there's a better deal, or if you make too many additional repayments on your home loan. Even if you're not leaving your loan to refinance, there are many reasons you might leave your home loan, such as moving overseas or interstate, accepting sudden profitable offers from buyers or receiving a substantial increase in income.

  Irrespective of the reason, knowing just how much you have to pay in the form of break costs can help you make an informed decision about your home loan. Remember that there's no standardised break fee and you can ask your lender ahead of time how much you might have to pay if you choose to repay your loan sooner than scheduled.

• How can I avoid them?

  While having to pay some kind of a fee is almost guaranteed if you choose to repay your loan ahead of time, you can take certain measures to avoid them. If you have a variable rate loan taken before 1 July 2011, you can attempt to ask your lender to waive the fee. If that doesn't work, you can ask your lender to at least offer you some kind of a discount considering that variable rate loans today don't charge it.

  If you're looking at refinancing options owing to better interest rates, consider pressuring your lender into offering a discount by stating that you wish to refinance rather than leaving your loan. To keep your business, they may match the offer you have presented to them. With this discount in place, you don't have to worry about refinancing and the associated exit fees. However, before you bargain with your bank, make sure you study existing options on the market so you know exactly what you're up against.

  People who know they'll own their homes for limited periods should look for home loans that charge little or no exit fees, even if it means looking for loans with slightly higher interest rates. If you plan to refinance, know that certain non-banks charge as much as 1.5 per cent of your loan amount as early termination fees. Most importantly, read all the fine print relating to exit fees carefully when you apply for a loan, as this can save you considerable heartache later.

Written by

Rebecca Pike

Senior Money Writer

Rebecca Pike is Finder’s senior money writer, with over 10 years of experience in mortgages and personal finance. A frequent TV and radio commentator, she frequently appears on Sunrise, A Current Affair, 9News, and Sky News, and contributes expert analysis to publications like Yahoo Finance and The Latch. Rebecca previously served as Editor of Mortgage Professional Australia. She has a Master’s degree in Journalism as well as ASIC-recognised certifications in Tier 1 Generic Knowledge and Tier 2 General Advice Deposit Products, which comply with ASIC guidelines. See full bio

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