Mortgage Discharge and Refinancing: Breaking Your Current Loan

Mortgage discharge is the legal process of removing a lender’s mortgage from the property title. When you refinance or pay off your mortgage completely, the current lender must discharge their mortgage so the new lender (or you, if paying off) can take ownership free of the old lender’s claim.

The discharge process typically takes 5–10 business days. Your solicitor lodges a discharge document with the land titles office, the current lender confirms all funds have been received and the debt is satisfied, and the title is updated. Once the discharge is registered, you’re no longer bound to the original lender.

Discharge fees are charged by some lenders, typically $100–$350. This is an administrative fee for processing the discharge. It’s non-negotiable with most lenders but shop around; some lenders waive the fee or include it in a refinance package to attract your business.

Early exit penalties are more substantial. If you’re in a fixed-rate loan and you want to break it before the term expires, the lender charges break costs or penalty interest. These costs can be substantial:

A $500,000 fixed loan at 5.0% with three years remaining. You want to refinance to a new lender at 5.5% (the new market rate). The lender charges you the difference in rates plus administration costs. If rates have fallen dramatically (e.g., to 3.5%), your break costs would be much higher because the lender is losing the benefit of the locked-in rate and will re-lend at a lower rate.

Break costs are calculated using the Interest Rate Differential (IRD) method or the Make-Good (MG) method. IRD calculates the present value of the difference in rates over the remaining term; MG is the cost the lender incurs to hedge their position. Lenders choose the method that’s highest (most costly for you). Break costs can range from $5,000 to $50,000+ on a large loan with significant rate changes.

Variable rate loans don’t have the same break cost exposure. If you’re on a variable rate, most lenders allow you to refinance without penalty (though they may charge a discharge fee or early exit fee of a few hundred dollars). Variable rate refinancing is usually only a 2–4 week process.

Interest-only to principal-and-interest conversion at the end of an interest-only period is not a “break.” You’re not terminating the loan early; you’re transitioning it to the next phase. Most lenders facilitate this transition for free (the discharge is not required; the mortgage is simply amended).

Refinancing strategy: if rates have fallen materially (0.5%+ below your current rate) and you’re on a fixed rate with years remaining, calculating break costs versus long-term interest savings is critical. Break costs of $15,000 might be justified if you save $5,000+ per year by refinancing to a lower rate (break-even in 3 years).

Refinancing early in a fixed-term term is most expensive. If you’re 18 months into a 5-year fix and want to break, the lender has more time horizon to recalculate rates and costs accumulate. If you’re 59 months into a 5-year fix (one month remaining), break costs are minimal.

Early exit fees (flat fees separate from break costs) are sometimes charged by lenders if you exit before a minimum term (e.g., “if you exit within two years, pay a $2,000 fee”). These are negotiable at origination; ask your broker to request waiver or reduction.

The refinancing process: (1) your new lender does a formal valuation and assessment; (2) your new lender issues formal approval; (3) your solicitor lodges an early discharge request with your current lender; (4) the current lender confirms the break costs and discharge amount; (5) the new lender releases funds to pay off the old lender and fund the new mortgage; (6) the discharge is registered.

Timing is critical. If your new lender funds before the old lender confirms discharge, there’s a brief period where you’re technically indebted to both lenders. Your solicitor coordinates to ensure funds settle on the same day.

Disclaimer: This article provides general information only and should not be taken as financial or legal advice. Break costs, discharge fees, and refinancing timelines vary by lender. Calculate the net benefit before breaking a fixed loan.