How a mortgage discharge is used

Cancellation, release or discharge of mortgage are common terms used to describe being released from the rights exercised by your lender on your property.

But while discharge only partially releases you from the charges that your creditor has on your property, it also allows you to be fully released from the rights obtained by your financial institution when you took out your mortgage.

But what is a mortgage discharge? How does it work? When do you need one? What fees must you pay as part of the process? To learn more about it, make sure to check out this article.

What is a discharge of mortgage agreement?

A mortgage is a loan secured by a property. When you take out a mortgage with a financial institution, that institution registers a lien on your property. This privilege, also called "duties" or "charges," allows them to seize your house legally should you fail to comply with the terms of your mortgage contract.

When you sell your home or finish paying off your loan, your lender doesn't automatically give up their rights to your property. You will therefore have to take the appropriate steps to obtain a mortgage discharge and thus withdraw your creditor's rights to the home.

The discharge agreement is therefore the official document certifying that the mortgage on a property has been paid in full. It certifies, by the very fact, that the residence is free of all rights, other than that of the current owner.

In the mortgage discharge agreement, the lender declares that they have received all the sums due and that the cancellation of the mortgage from the land register can take place. This cancellation means that your property is no longer used as collateral for the payment of the mortgage debt.

In Quebec, only notaries and lawyers are professionals able to prepare the documents necessary for the discharge agreement.

The mortgage discharge agreement during a real estate transaction

Often forgotten among the many documents necessary for a real estate transaction, the discharge agreement has an important role to play in the transition between the seller and the buyer. Indeed, during the sale of a building, the total amount borrowed for the purchase of the property must be reimbursed to the lender. It is up to the notary to ensure that this loan is repaid.

The notary will thus reimburse the seller’s creditor using the funds paid by the buyer and deposited into their trust account. In exchange for this reimbursement, the professional ensures that the lender signs the discharge agreement to guarantee the borrower that the latter no longer owes anything to the financial institution.

The notary then publishes the signed agreement at the Land Registry Office. Since the mortgage is also published, it will be easy for the buyer to see that the loan has been repaid in the land register.

What are the consequences of not having a mortgage discharge?

The mortgage discharge is not only a necessity during real estate transactions but also a crucial step to consider when buying a new property. In the absence of a discharge, the creditor of the former owner still has a lien on the property.

In the case of an outstanding mortgage, the creditor has the legal right to post an exercise notice against the residence for the purpose of repossessing the property for the payment of the debt. This is true even if the current owner of the residence is not the original borrower.

The mortgage discharge when changing lender

Except during a real estate transaction, the discharge is also necessary when changing mortgage lender. When you renew your mortgage, you have the option of choosing a new creditor and transferring your mortgage to them.

When you change lenders, your loan and title agreement information need to be updated. You will have to, with the help of your notary, obtain the discharge of your initial mortgage to be able to grant the privileges to your new lender.

Full mortgage repayment: when should you request a discharge?

A third situation that may require an act of discharge is the full repayment of your mortgage. If you have lived in the same property for several years and have paid the amount owed to your creditor in full, you may apply for a mortgage discharge to release yourself once and for all from your lender's rights to your home. But know that you don't have to do it on the last payment made.

In fact, as long as you do not sell your residence, you are not obliged to ask for the discharge, even if the loan is fully repaid. Although many experts advise you to request the release as soon as possible, you may also decide to wait a bit. Be careful, however, not to delay the mortgage discharge for too long.

The advantages of waiting before obtaining the discharge of the mortgage

While most people are happy to get off their mortgage as soon as they can, keeping a mortgage on their property also has some benefits. For instance, a mortgage registered in the land register can provide some protection against fraud. However, this approach is not foolproof.

Motivated fraudsters will still find a way to get what they came for, but they'd surely prefer a building that has already been discharged over a similar one with a mortgage. In the absence of a debt registered on the property, no verification is required by the former creditor, which facilitates the task of the fraudster. The presence of a mortgage can therefore complicate a dishonest person's plans to offer the property as collateral against a loan, but it will never offer the same type of protection as title insurance.

Another reason you might want to delay your discharge is that a mortgage can sometimes make your financing needs easier. In the event that a line of credit is associated with your mortgage and it is not used, requiring the signing of the discharge agreement amounts to depriving you of this financial access. You will lose a source of cheap credit that would otherwise help you deal with something unexpected or invest in a new project.

You are obviously under no obligation to use this funding source, but the ability to quickly access additional funds when needed can be reassuring.

The disadvantages of delaying your discharge of mortgage

While delaying your discharge request for a while may bring you some benefits, a prolonged wait could cause additional hardship. This is the case, for example, if your line of credit becomes too tempting and you take on debt that you didn't really need. It's better to be proactive and ask for discharge immediately.

You may also encounter issues if your financial institution changes its name or merges with another entity. For example, locating your records could be complicated, which would put off your discharge request.

In the case of an inheritance, for example, it can be difficult for heirs to obtain their records. If the notary in charge cannot find the information anywhere, it will be necessary to ask for proof that the residence is free of any financial burden. It will cost much more than the simple discharge fees. It's something to think about.

What are the costs associated with drafting a discharge agreement?

In order to complete the discharge of your mortgage, you will have to pay certain fees relating to the registration of the cancellation in the land register. To find out the applicable rates for the various services of the Land Registry of Quebec, consult the document in force on this page (french only).

In addition to the registration fee, you will also have to pay fees for the services of the notary. For this service, you can expect to spend anywhere between $450 and $750.

Do you want to learn more about mortgages? Consult our guide on the subject!

Are you in the process of buying or selling? If so, consult our two guides Real Estate: your complete guide to buying a home and Real Estate: your complete guide to selling a property.

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