What is a Mortgage Discharge?

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When you get a mortgage to buy a home, your lender registers a charge or lien on your property, giving them a legal right over the property. Lenders do this to protect their interest if you stop making mortgage payments or break the terms of your mortgage contract. Discharging a mortgage refers to the process through which a lender gives up their legal claim over a property after the terms of the mortgage contract have been fulfilled, and the mortgage discharge is a legal document certifying the same.

You will need to discharge a mortgage not only when the mortgage is paid off but also when the mortgage isn’t entirely paid off but you decide to sell the property or change lenders. While you may assume that the lender automatically gives up their right over your property once the mortgage is paid off, this is rarely the case. Read below to find out when a mortgage discharge is required, how the process of discharging a mortgage works, and what fees you will have to pay.

There are three main situations when a mortgage must be discharged:

• When the mortgage is paid off: Your mortgage may be discharged once it is paid off in full. Before starting the discharge process, you must ensure that there is no amount owing on the mortgage or any related products, such as a HELOC (Home Equity Line of Credit) and second mortgages. For example, if you have paid off your mortgage but still have some outstanding balance on your HELOC, you will have to pay that off before discharging your mortgage. In the same situation, if the HELOC lender is different from the mortgage lender, and you have paid off one of the loans, only the paid-off lender can be discharged.

  If you plan to get a loan from the same lender in the future by placing your home as a security, you may hold off from discharging your mortgage.

• Before selling the property: If you are selling your property, a mortgage discharge is required so that a clear title can be transferred to the buyer.

  If a seller has an outstanding balance on their mortgage at the time of closing, the seller’s lawyer will have to provide an undertaking to the buyer’s lawyer to pay out and discharge the mortgage and clear the title of the property. This undertaking is a promise made by the seller’s lawyer to the buyer’s lawyer and must be honoured. When the buyer pays the purchase amount, the money is held in a trust and is used to repay the seller’s mortgage to the lender, who then signs the mortgage discharge document, relinquishing their claim on the property. The remaining proceeds of the sale are then transferred to the seller.

• When changing lenders: Another common scenario is when you refinance your mortgage and switch to a different lender or switch to a new lender at the time of mortgage renewal. In such a situation, you will have to remove your existing lender from your property title and add the new lender to it.

Apart from the above situations, a mortgage may be discharged if the property is foreclosed or when the property owner dies.

The mortgage discharge process primarily involves three main parties:

• The borrower,
• The lender,
• The land title registry office of the province where the property is located.

Apart from the above, the involvement of a real estate lawyer, a notary or a commissioner of oaths may be required depending on the provincial regulations. Even if your province allows you to do all the work yourself, you may have to get the documents notarized by a professional.

• Get a mortgage discharge document from the lender: After the mortgage has been paid off, you may have to put in a formal request to discharge the mortgage with your lender. After which, the lender will send you a signed mortgage discharge document confirming that the terms of the contract have been fulfilled. In some provinces, once the mortgage is paid off, the lender will directly fill out the discharge form and send it to you or file it with the land titles registry.

• Submit all the required documents to the land registry office: Once the discharge document is received, you, your lawyer or your notary will have to submit all the required documents to the local land registry office. After receiving and reviewing the documents, the land registry office will remove your lender’s rights to your property, and the title of the property will be updated.

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• Lender’s Mortgage Discharge Fees: Your lender may charge you a fee to discharge the mortgage. This fee is usually set by the lenders; however, some provinces and territories have regulations in place for the maximum amount that can be charged. Typically, lenders charge a discharge fee of $0 - $400. Federally regulated lenders are required to disclose the mortgage discharge fee in your mortgage contract, and you can refer to the contract for fees.

• Professional fees: If the discharge process requires the involvement of a lawyer, notary and/or commissioner of oaths, you may have to pay them professional fees. The fees usually depend on the professional; however, they typically range between $400 and $2,500.

• Penalty Fees: Your lender may require you to pay early prepayment fees when you pay off the mortgage before the end of the mortgage contract. This often depends on whether your mortgage is an open mortgage or a closed mortgage. This penalty can cost you thousands of dollars, and you may look up your mortgage contract to find out the prepayment penalty charged by your lender.

A mortgage discharge may be full or partial:

• Full Discharge: A full or total discharge is a document certifying that the mortgage is paid back in full by the borrower. After repaying the mortgage in full, the borrower is no longer indebted to the lender, and the lender must give up the right to seize the property. The full discharge document can then be submitted to the local land title registry office to remove the lender from the title of the property.

• Partial Discharge: A partial discharge often comes into play when there are multiple properties securing a mortgage. For example, you take a mortgage to buy a house by placing the house and another piece of real estate that you own as security. In this scenario, when you pay off a significant portion of the mortgage, which may be equal to or more than the value of at least one of the properties, you can request a partial discharge. The partial discharge releases one of the properties from the mortgage, and the lender can be removed from the title of that property.

A mortgage discharge form must be filled out and filed with the local land titles registry office to remove the lender from the property’s title. A mortgage discharge form is usually available on the land titles website of the province or territory where the property is located and with notaries or real estate attorneys. Depending on the provincial or territorial regulations, you may be able to fill out the discharge form yourself and get it notarized, or you may have to get it filled out by a lawyer, notary, or commissioner of oaths.

The mortgage discharge form for Ontario is available online, with attorneys, and with the local Registry of Deeds office. You will have to get the help of an attorney to discharge a mortgage in Ontario. To ensure the process is smooth, you should bring a letter from the lender that states you have paid the mortgage in full. The attorney will act as a witness when the lender fills out the mortgage discharge form. The attorney will also act as a notary and sign and stamp the discharge form. You should then submit a copy of this form to the local Registry of Deeds office in order to remove the lender from the property’s title.

In British Columbia, the mortgage lenders are responsible for filing the mortgage release form on behalf of the property owner once the mortgage is paid in full. The form, Form C Release of Mortgage, must be filed electronically with the Land Title and Survey Authority of British Columbia (LTSA).

To confirm that the release document is filed with the LTSA, the property owner can request the lender to provide them with a State of Title Certificate. You can also order a copy of the title yourself through myLTSA Explorer.

In British Columbia, property owners cannot request changes to the land titles themselves. They are required to hire a lawyer or a notary public to make any changes to the title.

In Quebec, only notaries or lawyers can prepare the discharge agreement that certifies that the mortgage has been repaid in full. Once the lender signs the discharge agreement, the notary or lawyer then publishes the agreement in the Quebec Land Registry.

Discharging a mortgage in Alberta requires the mortgagee (lender) to fill out the Discharge of Mortgage or Encumbrance form in front of a designated witness (lawyer, notary, etc.). The discharge document includes an affidavit that must be signed and stamped by a commissioner of oaths. The signed discharge document must be provided to the property owner. In Alberta, the mortgagee is responsible for executing the discharge, and therefore, the lender may directly register the discharge with the Land Titles office themselves and may notify the property owner of the same.

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A release of mortgage document is a legal document signed by the lender that certifies that the borrower has paid the mortgage in full and waives the lender’s right over the property. In order to remove the mortgage from the property’s title, the discharge document must be filed with the local land titles registry.

Based on the regulations in your province or territory of residence, you may need to hire a lawyer to complete the mortgage discharge. You should check the provincial or territorial regulations to find out if you need a lawyer. That said, if you are unsure of completing the discharge process yourself, you can always consult a real estate lawyer. Meanwhile, if you are selling a home that still has an outstanding mortgage balance, a lawyer or notary may be required to enable the transaction.

A mortgage release/discharge is not mandatory; however, it is highly recommended. Discharging your mortgage once it is paid off will remove the lender’s legal claim from your property.