How do you buy someone out of a mortgage?
When you think of a mortgage or property buyout, you’d be forgiven if your first thought were divorce or separation. However, there are several other situations where one party wishes to leave or take complete control of a mortgage.
It could be between family members who have inherited the equity in a property. Or, perhaps, with a multiple occupancy home, one of the tenants wants to move on and take their share of the equity with them. It could even be time to buy out a parent or other family member who invested as a joint partner or guarantor.
How does a mortgage buyout work?
Whatever the situation—holding a mortgage as joint tenants or tenants in common—the result is the same. One person (or a selection in a 'tenants in common' multiple occupancy situation) takes over the mortgage, paying the leaving partner (or partners) their share of equity that the property has accrued.
How to buy out someone from a mortgage
- The remaining partner buys out the leaving partner by paying them their share of the mortgage equity.
- The leaving partner’s details are removed from the mortgage and title deeds.
- The remaining partner takes over paying the mortgage on the property.
You’ll need a solicitor to complete the mortgage and title deed paperwork. You would also benefit from employing a specialist mortgage advisor to locate your best remortgage options if that’s a possibility.
Depending on the situation's complexity, you may choose to employ legal representation to manage the communication and terms of the settlement.
IMPORTANT - Whatever you do, make sure all partners keep paying their share
The process is far easier if negotiations remain amicable. Sadly, it’s not always easy in separation and divorce cases, but you’ll get to the finish line far faster if you can agree on the critical matters and spend less time deliberation.
The parties named on the mortgage are (in mortgage terms) ‘jointly and severally’ liable for the loan. ‘Severally’ means separately, so even if one partner has moved out, they’re still responsible for making their share of the payments until an alternative payment scheme is in place.
If one party fails to pay their share, the mortgage defaults, and that responsibility lies with all partners. Outstanding amounts pursued by the mortgage provider lead to court action against both parties, fines, and penalties to both, and the impact on both parties’ credit scores.
If the property is repossessed, both parties will lose their investment, even if one has continued to pay their share throughout the separation period.
Calculating the transfer of equity
This is how a straightforward equity transfer works:
- Get the property valued. Your lender may cover this as part of the deal, or for the most accurate option, employ a chartered surveyor who will charge a fee for the service.
- Ask your lender for a mortgage redemption certificate. This tells you how much money is left to pay on your mortgage and informs you of any early repayment charges.
- Subtract the outstanding amount from the property valuation. This leaves the figure you’ve repaid so far.
- Divide the remainder by two to calculate each partner’s equity. If the mortgage is split between more than two people, you should divide the net equity by that number to calculate each party’s share.
In divorce cases, the property will likely be part of the settlement agreement, so the equity share won’t be clear until the final deal is made.
Taking over a mortgage
If you’ve got the capital available, you can pay your partner their share of the equity, have them removed from the mortgage and title deeds, and continue to make the payments on the existing mortgage. This is known as a product transfer.
You’ll have to prove to the lender that you can afford to make the payments by yourself, providing the necessary paperwork and details that may have changed since you signed the original contract.
Remortgaging to cover costs
Taking over the total mortgage will increase your monthly payments, and you’ll have to find the money to pay for your partner’s equity share.
After consulting your paperwork, your existing lender may approve an increase to your mortgage to include the equity payment for your ex-partner; this is called a ‘further advance.’
Alternatively, you can explore the market for a remortgage deal with a different provider. Ideally, you’ll find a preferable rate or term, freeing up a little extra cash or meeting your costs when your existing provider isn't prepared to cover the risk.
Regarding remortgaging, a specialist buyout mortgage broker will help you find the best deals and opportunities for the situation. Given their typically low fees, they can often save buyers a great deal of money in the long term.
What are the options if you can’t afford a mortgage buyout?
Sometimes, buying out someone on a mortgage isn’t possible, so you’ll need another plan.
- Sell the property and split the equity. Once you’ve paid off the mortgage, you can share the leftover capital between selling parties. So you’ll have to keep paying the mortgage until the property sells, which can often take quite a while, and you’ll need to remain on fair terms until completion.
- Find a friend or family member to take over your partner’s share of the mortgage. A new investor might be looking for a home and be happy to move in, or they could be looking for an investment opportunity. Guarantor mortgages are also an option for family members to help hold onto a property in difficult times.
- Retain joint ownership for a limited time. Where funds are available, the leaving partner could continue paying their share of the mortgage as an investment opportunity until later. This would allow the remaining party to live in the property and split the equity when the property is eventually sold. It would also allow time to set up a savings scheme to buy out their partner at that time if they’d prefer to remain in the property indefinitely. (Families often utilise this option until their children have left home, allowing them to complete school without further disruption.)
An experienced mortgage buyout broker should be your first step in the process
When you need the complete lowdown on how to buy out a partner from a mortgage, a mortgage broker with experience in the field is a godsend. They’ll guide you through the entire process, delivering the best options available in your situation. They know the market better than anyone and understand the legal issues involved in managing the money, finalising paperwork, and which essential professional services you’ll need.
Call CLS to chat about your mortgage buyout options. We’d love to help you find your happy ending to a troubling time.
