Selling a House With a Mortgage in WA: How the Discharge Process Works

If you're selling a property in Hillarys, Joondalup or indeed anywhere in WA and still have a mortgage on it, you're certainly not alone. In fact, most properties sold in WA still have a loan secured against them when they go on the market.  One of the most common questions sellers ask us is:  "How does my mortgage actually get paid out?", closely followed by: "Do I need to do anything with my bank?"

The good news is that paying out a mortgage at settlement is a routine part of the conveyancing process. However, there are a few important steps and potential pitfalls that every seller should understand to ensure a smooth transaction.  So, let's walk through how the discharge process works and what you need to do to keep your settlement on track.

What is a mortgage discharge?

When you took out your home loan, your lender registered a mortgage on your property title.  A mortgage gives the bank a legal interest in the property as security for the money they lent you (in the event that you don’t repay it in accordance with the loan terms).  When selling a house with a mortgage in WA, that mortgage needs to be removed from the title. The process of removing it is called a ‘discharge of mortgage’.

A buyer cannot take ownership of a property while an existing mortgage is still registered.  At settlement, the seller’s conveyancer will direct the buyer’s conveyancer to pay the amount owing to the bank, and in exchange for the funds, the bank will remove the mortgage from the title.

Without the discharge, settlement cannot proceed.

What is a Discharge Authority?

One of the first things your conveyancer will ask you to do after your property goes under offer is to complete a Discharge Authority with your bank.  This is a document provided by your lender that tells them you’ve sold the property and need them to participate in the settlement to remove their mortgage from your title.

Many sellers assume their conveyancer can simply contact the bank and arrange this. Unfortunately, though, that's not how it works. Each bank has a different form that must be used and requires written authority directly from all borrowers listed on the account before it can begin the discharge process.  

Why signing the discharge early matters

This is one of the biggest causes of avoidable settlement delays.  Many lenders require several weeks' notice before settlement to process a discharge request.  And in more complex situations (such as loans involving guarantors or partial discharges with multiple properties attached to the same loan), significantly longer timeframes may be required.

The earlier you sign your Discharge Authority, the better.

Even if settlement is still weeks away, there's generally no disadvantage in lodging it early.  Your conveyancer will often recommend sending it to the bank immediately after your offer becomes unconditional.

What happens after the discharge is lodged?

Once your lender receives the signed discharge authority form, they begin preparing for settlement.  This generally involves verifying your authority, confirming the loan details, calculating the payout and preparing the discharge documentation.  In most cases, settlement takes place online, on a platform called PEXA, so your conveyancer will invite your bank to join the electronic settlement workspace.

Part of your conveyancer’s role is also to monitor the bank’s progress and liaise with them throughout the process to ensure that they are ready to settle on the scheduled date.

How does the bank calculate what you owe?

One of the biggest surprises for sellers is that the amount owing at settlement is often different from the loan balance they can see online.  The final payout figure may include:

• Accrued interest up to settlement

• Discharge fees

• Fixed-rate break costs (if applicable)

• Other lender charges

For this reason, most lenders don't provide their final payout figure until very close to settlement.  In most cases, this occurs between one or two business days before settlement and the morning of settlement itself.

What happens on settlement day?

With most settlements now happening electronically through PEXA, once all parties are ready, the buyer’s and seller’s conveyancers work together to ensure:

• The buyer's funds are made available

• The outgoing lender receives the amount required to discharge the mortgage

• Government charges and adjustments are paid.

• The title is transferred to the buyer.

• Any remaining sale proceeds are distributed.

The mortgage is removed from the title as part of this settlement process.

Where do the sale proceeds go?

Many sellers assume all sale proceeds automatically come to them.  In reality, the lender gets paid first, and then any remaining funds are distributed according to your instructions.  Generally, sellers have two options.

Option 1: The conveyancer distributes the surplus funds

After the mortgage payout is made, your conveyancer deducts any other costs, such as the real estate agent’s commission and the conveyancing fees, and deposits the balance into your nominated account.

This is often the quickest option.  In many cases funds arrive within minutes of settlement (depending on the receiving bank), or at the latest, overnight.

Option 2: The bank receives all sale proceeds

Some sellers choose to have all sale proceeds paid to their lender.  The bank then distributes funds according to the instructions provided on your discharge authority.  This can work perfectly well, but some lenders place funds in an internal holding account before releasing them, so it can sometimes take an extra day or two for funds to become available.

Example: How sale proceeds are distributed

Let's say you’ve sold for $900,000 and owe $450,000 to your bank.  After the relevant deductions for costs such as the agent’s commission and your conveyancing fees, your funds might be distributed like this:

This is an example of a settlement statement, which your conveyancer will provide to you, showing exactly how every dollar is allocated.  In this example, the sale proceeds due to you after all deductions are $433,002.39, and this amount will be disbursed in accordance with the instructions you provide your conveyancer.

What happens if there's a shortfall?

Occasionally, the sale proceeds aren't enough to repay the mortgage in full.  This is known as a shortfall.  For example, if you sell your property for $600,000, but you owe the bank $620,000.

In this situation, settlement cannot proceed unless arrangements are made to cover the difference.  Usually, this means the seller contributes additional funds before settlement.  If you think a shortfall may exist, it is important to tell your conveyancer as early as possible.

These situations can usually be managed, but they require planning.

What about simultaneous settlements?

As often happens, sellers sometimes buy another property at the same time as they sell.  In these cases, the sale and purchase often settle on the same day, a process known as simultaneous settlement.

The proceeds from the sale are used to fund the purchase.

While this is very common, it also means timing becomes more critical.  A delay in the sale can delay the purchase. Your conveyancer coordinates both transactions to minimise risk and keep everything moving.

Common mistakes sellers make

The most common discharge-related issues we see are:

• Signing the Discharge Authority too late

• Assuming the loan balance equals the payout figure

• Not telling their conveyancer about multiple securities or a guarantor arrangement

• Assuming the sale proceeds will be available immediately after settlement

Most of these issues are easily avoided with early communication.

FAQ: Selling a house with a mortgage in WA

Can I sell my house if I still have a mortgage?

Yes. The mortgage is simply paid out at settlement and discharged from the title.

When should I sign my Discharge Authority?

As soon as possible after your property goes under offer.

How long does a discharge take?

It varies between lenders, but several weeks is common. More complex arrangements can take longer.

Will I receive all the sale proceeds?

No. Your lender is paid first. You receive the remaining balance after the mortgage and other costs are deducted.

What if my sale proceeds don't cover the mortgage?

Generally, you'll need to arrange payment of the shortfall before settlement can proceed.

Taking the stress out of mortgage discharge

Selling a property with a mortgage is completely normal, but the discharge process isn't something to leave until the last minute.  Signing your Discharge Authority early, understanding how payout figures are calculated, and working closely with your conveyancer can help avoid unnecessary delays and stress.

At North Shore Conveyancing, we guide sellers through the entire process, from contract acceptance through to mortgage discharge and settlement.  If you're selling property in Perth and want practical advice about your mortgage payout, settlement timing, or sale proceeds, contact Katelyn today. I’m here to make the process as smooth and stress-free as possible.