The mortgage discharge statement is an important document that ensures transparency and accuracy when calculating the total payout for a mortgage transfer. It is critical for refinancing, selling a property, transferring a mortgage, or paying off a mortgage by allowing the new lender to settle the existing loan and register its own mortgage on the property.
Borrowers should always review the statement carefully, especially the prepayment penalty, as this can significantly impact the overall cost of transferring a mortgage.
What is a Mortgage Discharge Statement?
When is a Mortgage Discharge Statement Used?
Switching or Transferring Lenders
What is a Mortgage Discharge Statement?
A request for a mortgage discharge statement is a formal communication sent to a lender to obtain the total amount required to fully pay off and discharge a mortgage. The statement includes:
- The outstanding principal (the amount remaining on the loan)
- Accrued interest (interest owed up to the discharge date)
- Fees or penalties (such as prepayment penalties or administrative charges)
- Daily interest amount (in case the discharge date extends beyond the statement’s validity period),
- Payment instructions (where and how to send the funds)
The mortgage discharge statement document is essential for legally removing the lender’s claim on a property title.
When is a Mortgage Discharge Statement Used?
A mortgage discharge statement is typically used in the following scenarios:
- Selling a property
- Mortgage Refinancing
- Paying off a mortgage
- Switching/transferring lenders
- End of Mortgage Term
Selling a Property
When a homeowner sells their property, they need to discharge their mortgage to provide the buyer with a clear title. If the mortgage was not discharged, there would still be a claim on the property from the seller’s lender when the buyer takes possession. Without a proper discharge, the seller would be selling something the seller didn’t completely own.
Mortgage Refinancing
If a borrower switches to a new lender for better terms, consolidates debt, or takes out equity, the original mortgage must be discharged. The original mortgage must be discharged because refinancing involves replacing the existing mortgage with a new loan. This process legally requires the removal of the current lender’s claim (lien) on the property and the establishment of the new lender’s claim. Here are the reasons why:
- Legal requirement to clear the title
- Switching lenders or loan terms
- Ensuring no conflicting liens
- Paying out secured debts
Legal Requirement to Clear the Title
A mortgage is a legal claim (lien) the lender holds on your property as collateral for the loan.
When refinancing, the new lender provides funds to pay off the original loan, and the old lender’s lien must be removed to clear the title.
Without discharging the original mortgage, the new lender cannot secure their claim on the property.
Switching Lenders or Loan Terms
If the refinancing involves moving to a different lender, the new lender cannot assume or take over the existing mortgage. They must create a new loan agreement, which requires discharging the old one.
Even if refinancing with the same lender, the terms of the new loan (e.g., interest rate, term, loan amount) often differ, requiring the existing loan agreement to be nullified.
Ensuring No Conflicting Liens
Discharging the original mortgage prevents multiple active liens on the property, which could complicate the lender’s ability to enforce their claim if repayment issues arise.
It ensures the new mortgage takes first priority over other potential claims.
Paying Out Secured Debts
During refinancing, the new loan typically pays off the balance of the old mortgage and any other secured debts tied to the property (e.g., HELOCs or second mortgages). Discharging the original mortgage formalizes this payoff.
Paying Off a Mortgage
When a borrower repays their mortgage in full before the end of the term, a discharge statement is required to finalize the process. A discharge statement is required when a borrower repays their mortgage in full before the end of the term because it is a formal document that outlines the exact amount owed to fully settle the mortgage and ensures the legal and financial closure of the loan.
- Legal removal of the lender’s claim
- Accurate settlement amount
- Formal conclusion of the mortgage
- Protection for all parties
- Registration for the discharge
Legal Removal of the Lender’s Claim
A mortgage represents a legal lien on the borrower’s property, giving the lender a claim until the loan is fully repaid.
A discharge statement confirms the total amount required to pay off the mortgage and triggers the process to remove the lien from the property’s title.
Without the discharge, the lender’s claim on the property remains, even if the loan has been repaid.
Accurate Settlement Amount
The discharge statement includes the exact amount needed to repay the mortgage in full. This includes:
- Outstanding principal balance.
- Accrued interest up to the repayment date.
- Any prepayment penalties or fees for breaking the mortgage early.
- Additional administrative fees or charges (e.g., discharge processing fees).
This ensures that the borrower clears the full debt without underpayment or overpayment.
Formal Conclusion of the Mortgage
The discharge statement acts as an official acknowledgement from the lender that the mortgage will be fully repaid.
It provides written evidence that the borrower has satisfied all financial obligations associated with the loan.
This is particularly important for the borrower’s financial records and for legal clarity.
Protection for All Parties
The discharge statement provides protection for all parties:
- For Borrowers:
- Ensures they understand the total cost of repayment, including any penalties or fees.
- Provides confirmation that no outstanding debts remain with the lender once payment is made.
- For Lenders:
- Ensures that they receive all funds owed to them before releasing their claim on the property.
Registration of the Discharge
Once the mortgage is repaid in full and the funds are received, the lender issues the discharge and files it with the provincial land registry.
This process removes the mortgage from the property’s title, freeing it from any financial encumbrances.
The property can then be sold, refinanced, or owned outright without any claims from the lender.
Example Scenario
A borrower in Ontario decides to pay off their $250,000 mortgage early to sell their property. The discharge statement from their lender outlines:
- Outstanding principal: $250,000.
- Accrued interest: $1,200.
- Prepayment penalty: $5,000.
- Administrative fees: $300.
- Total owed to discharge the mortgage: $256,500.
After paying this amount, the lender processes the discharge, removes the claim from the title, and issues a confirmation to the borrower.
Switching or Transferring Lenders
If a borrower moves their mortgage to another lender, the discharge statement helps calculate the exact amount owed to close the loan.
Example: Moving loan to another lender
Jane has an existing mortgage with Lender A. She has 2 years remaining on a 5-year fixed mortgage term of $400,000 with an interest rate of 4.5%. However, she discovers that Lender B offers a lower rate of 3.5% and decides to refinance by transferring her mortgage to Lender B.
To complete the transfer, Lender A requires the outstanding mortgage amount to be paid in full. A discharge statement is necessary to calculate the exact amount Jane owes, including any additional fees or penalties for breaking the term early.
Step-by-Step Process Using the Discharge Statement
- Request for a Discharge Statement: Jane submits a request for a discharge statement to Lender A, usually through her lawyer or directly via a formal application. This document will include all financial details needed to close her loan.
- Details in the Discharge Statement: The statement from Lender A includes:
- Outstanding Principal: $350,000 (Jane has paid down $50,000 of the original loan amount).
- Accrued Interest: $875 (interest accrued since her last monthly payment).
- Prepayment Penalty:
- Lender A calculates this based on the Interest Rate Differential (IRD), which is higher than three months’ interest:
- Jane’s fixed rate: 4.5%.
- Lender A’s current 2-year fixed rate: 3%.
- IRD Penalty = ($350,000 × (4.5% – 3%) × 2 years) = $10,500.
- Lender A calculates this based on the Interest Rate Differential (IRD), which is higher than three months’ interest:
- Administrative Fees: $300 (processing and discharge fees).
Total Amount Owed to Discharge:
$350,000 (principal) + $875 (interest) + $10,500 (penalty) + $300 (fees) = $361,675.
- Payment by the New Lender:
- Lender B provides Jane with the funds needed to pay off the discharge amount in full.
- These funds are sent to Lender A by Jane’s lawyer or mortgage professional.
- Mortgage Discharge:
- After receiving the $361,675, Lender A discharges the mortgage by removing its lien from Jane’s property title.
- This step legally clears Lender A’s claim, allowing Lender B to register its own lien on the property.
- New Mortgage with Lender B:
- Jane begins her new mortgage with Lender B at the lower rate of 3.5%, potentially saving thousands of dollars in interest over the new term.
How the Discharge Statement Was Essential
The discharge statement was essential for Jane as:
- The discharge statement provided a detailed breakdown of the exact amount Jane owed to close her mortgage with Lender A, including the principal, accrued interest, prepayment penalty, and fees.
- It ensured that Jane and Lender B knew the precise funds required to finalize the transfer.
- Without the discharge statement, Jane risked underpaying or overpaying, leading to delays or complications in the refinancing process.
End of Mortgage Term
At the conclusion of a mortgage term, if the loan is fully repaid, a discharge statement ensures the mortgage is removed from the property title by serving as the formal document that outlines the total amount required to pay off the mortgage. This document initiates the discharge process, which legally removes the lender’s lien on the property. The process works as follows:
1. Full Repayment of the Loan
At the end of the mortgage term, if the borrower has fully repaid the loan, the lender provides a discharge statement. This document confirms that:
- The outstanding principal balance has been paid.
- Any accrued interest and fees have been settled.
- No further obligations remain on the mortgage.
2. Confirmation of Repayment Amount
The discharge statement specifies the total amount owed to bring the mortgage balance to $0. This includes:
- Outstanding Principal: The remaining loan balance.
- Accrued Interest: Any interest accumulated since the last payment.
- Discharge Fees: Administrative fees charged by the lender for processing the discharge.
3. Legal Discharge of the Mortgage
After the borrower pays the full amount outlined in the discharge statement, the lender initiates the legal process to discharge the mortgage from the property title:
- The lender prepares a Discharge of Charge/Mortgage document.
- This document is submitted to the provincial land registry office
Once registered, the mortgage lien is officially removed, clearing the property title of the lender’s claim.
4. Borrower’s Responsibility to Finalize
In some provinces (e.g., Ontario), while the lender provides the discharge document, it may be the borrower’s responsibility to:
- Ensure the discharge is properly registered with the land registry office.
- Pay any additional fees required by the registry office for processing the discharge.
Example Scenario
Jane fully repays her $300,000 mortgage at the end of the 25-year amortization period. Her final payment of $1,500 covers the remaining balance and accrued interest.
Jane requests a discharge statement from her lender, which outlines:
- Outstanding principal: $1,400.
- Accrued interest: $50.
- Discharge fee: $50.
- Total owed: $1,500.
Jane makes the payment, and her lender prepares the Discharge of Charge/Mortgage document.
The lender submits the discharge to the provincial land registry office.
The lien is removed from the property title, and Jane receives confirmation that her property is now fully owned without encumbrances.
Why the Discharge Statement is Essential
The mortgage discharge is essential because
It ensures the borrower knows exactly how much is needed to finalize the mortgage.
Provides a formal record to trigger the discharge process.
Confirms that the lender’s claim on the property is fully removed, giving the borrower outright ownership.
Prevents issues if the borrower wants to sell or refinance the property later.
Conclusion
The discharge statement plays a critical role in finalizing the mortgage and ensuring the lien is removed from the property title. It acts as a formal declaration of the borrower’s financial obligations being met and initiates the legal process of discharging the mortgage. Without it, the mortgage may remain on the title, causing complications for the borrower in the future.
