When you take out a joint mortgage with someone, you are both responsible for paying the entire mortgage – not just half.
This means that if your partner, relative, friend or whoever you share the mortgage with fails to pay their share, the lender will still expect you to pay the full amount.
With this in mind, it’s important to keep up with your repayments while you weigh up your options.
Failure to pay your mortgage can lead to your home being repossessed. It also causes serious damage to your credit history.
In this blog, we take a look at how to buy someone out of your mortgage.
Work it out
To have complete ownership of the property, you will need to buy the other person out of the mortgage and have their name removed (known as a Notice of Correction).
You can start this process by having your home valued. This gives you an idea of how much you’d get if you were to put it on the market.
Once you have this number, you can work out the equity you and the other person shares in the property by subtracting the sum left outstanding on your mortgage from the value. And it’s this amount that you’ll split - typically in half. But, ultimately, the amount you both get could depend on how much you both put into buying the house.
It’s not always as simple as splitting the equity down the middle. Let’s say you put in more money for the initial deposit and have paid more towards the mortgage - you could argue that you should receive a higher slice of the equity.
For more details on how to release equity, head here.
What are my options?
There is a chance that you have thousands of pounds lying around in your savings. If you do, you could offer to give the other mortgage holder the cash they’re owed and take over the mortgage by yourself if you can afford to.
There’s more to it than this, though, as you’ll need to let your lender know so the other person can be taken off the mortgage – and they’ll need to be removed from the property’s Title Deeds too. Learn more about this here.
And if you don’t have this sort of cash saved, how do you afford to buy someone out of your mortgage?
Remortgaging or taking out a second-charge mortgage might be options. If you’re not familiar with what these involve, we’ll talk you through it.
How do I remortgage?
When you apply to remortgage, lenders will complete a detailed review of your income, expenditure and credit history. It doesn’t matter that you are likely to have already gone through these checks when you first took out the mortgage.
The mortgage provider wants the reassurance that you will be able to afford the repayments on your own. It’s for this reason that you’ll be treated as a new applicant.
Chances are you’ll have to borrow more in order to keep your home and pay the other owner what they’re owed. If the lender thinks that you might struggle to keep up with the repayments with just your income, they could turn you down.
Extending your mortgage term can make your monthly payments more affordable. However, it will mean that you’ll probably pay more interest in total.
What else could I consider?
Another way to raise the cash to pay for the other person’s share of the equity is to take out a secured loan. This is attached to your property and typically lets you borrow more when compared to an unsecured loan. This is because the lender has your property as security if you fail to make your repayments.
You’ll be able to spread the cost of your repayments over a long term. But, before applying, make sure you can afford the loan repayments on top of your current mortgage payments.
The higher your property’s loan-to-value – what’s left to pay on your mortgage compared to how much equity you have - the more competitive the deals that will be available to you. For more information on how to apply for a secured loan, head here.
For more information on splitting finances that you previously shared with someone, click here and here.
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Intelligent Lending Ltd (Credit Broker). Capital One is the exclusive lender.