Paying Out Your Mortgage When Selling a Home in British Columbia

If you are selling a home with a mortgage on it, the mortgage does not usually stay with the property. How the payout works on completion day depends on your mortgage and your situation, so it is worth confirming the steps with a lawyer before you commit to a completion date.

People often ask how long this takes. There is no single answer, because it depends on your mortgage and your lender. This article explains the general process and the rules that can affect what you owe.

This article covers the law of British Columbia.

How payout from sale proceeds generally works

A mortgage is a debt secured against your property. A buyer usually expects to receive the home free of your lender's claim, so the balance owing is normally paid to your lender out of the money the buyer provides. Whatever is left after the payout and other closing costs is what you receive.

The legal work is normally handled by a lawyer or a notary public. A notary public enrolled and in good standing may draw instruments relating to property that are intended, permitted or required to be registered. A notary who is not in good standing must not act.

The seller's completion duty

A person transferring land in fee simple must deliver to the buyer a transfer registrable under the Land Title Act. This is the seller's core completion obligation. Clearing your mortgage is part of getting the sale ready to complete, so your lender's payout should be arranged in step with the closing timetable.

If the buyer raises a requisition or objection about title, either party to a sale of land may apply summarily to the Supreme Court about it, except on a question affecting the contract's existence or validity.

How long does a payout take?

The time needed depends on your lender and the terms of your mortgage, including any notice period, payout charges and how the lender produces its figures. Ask your lender for a written payout statement showing the amount owing to a specific date, and tell your lawyer or notary as soon as you have a firm sale.

• Whether you must give the lender notice before paying out.
• Whether a prepayment charge applies and how it is calculated.
• How the payout figure changes day by day until completion.
• Whether the lender requires its own paperwork before it releases its claim on title.

The five-year rule under the Interest Act

Under the federal Interest Act, if a mortgage is not payable until more than five years after it was made, the borrower may, after five years, pay off the amount owing plus three months' interest in place of notice, and no further interest is chargeable. This limits what a lender can charge on a payout after year five.

There is an exception. The rule does not apply to mortgages given by joint stock companies or other corporations, or to certain prescribed entities. Whether it helps you depends on your mortgage, so check your documents or ask a lawyer.

What to do next

• Find your mortgage documents and note the term and any payout conditions.
• Request a written payout statement from your lender.
• Give your lawyer or notary the lender's details as soon as you accept an offer.
• Ask whether the five-year rule could apply to your mortgage.
• Confirm what you should expect to receive after payout and closing costs.

Frequently asked questions