When you sell your house in Ontario, your existing mortgage does not move to the buyer. It gets paid off in full out of the sale proceeds on closing day, and if you are still partway through your term, you may owe a prepayment penalty on top of the balance.
The mechanics run through your lawyer. Once the sale closes, your lawyer requests a payout statement from your lender that shows the exact balance owing on the closing date. Money from the buyer flows in, your lawyer sends the lender what it is owed, and the lender then issues a discharge. That discharge gets registered against the property title so the lender's claim is removed and the buyer takes the home free of your loan. If you want more detail on this side of the deal, see what a real estate lawyer does in Ontario.
The penalty is where sellers tend to get surprised. Breaking a closed mortgage before the term ends usually triggers a charge. On a variable-rate mortgage that penalty is normally three months of interest. On a fixed-rate mortgage it is typically the greater of three months of interest or the interest rate differential, which can climb into the thousands when rates have dropped since you signed. An open mortgage lets you pay out with no penalty at all, one practical difference explained in open versus closed mortgages. For how these charges are actually worked out, read how mortgage prepayment penalties work.
Beyond any penalty, expect a discharge fee. Most major lenders charge a few hundred dollars to prepare the discharge document, and a smaller provincial registration cost sits on top of that. The payout and discharge are usually handled inside the closing, though clearing the record at the provincial land registry can take a few weeks afterward.
Porting is worth a look if you are buying another home around the same time. It carries your current rate and terms over to the new property and can sidestep the penalty entirely, depending on your lender's rules and timing. That option is covered in mortgage portability.
What you actually walk away with is the sale price minus the mortgage balance, any penalty, the discharge and legal costs, and real estate commission. That number is your net, and pinning it down early makes the whole sale much easier to plan.
Related reading: How Mortgage Prepayment Penalties Work in Canada, What Is Mortgage Portability in Ontario, and Open vs Closed Mortgage in Canada.
