Mortgage buyout

Mortgage Buyout – How to calculate who is owed what

Life happens, and even though you may have entered into a long-term mortgage commitment with either a friend or a significant other, you might be in a situation where there’s no other option but to end the mortgage commitment: how do you go about doing this?

Well, you’ll have to start by doing a mortgage buyout. In this article, we’ll explain how you can do this and offer suggestions for what you can do if you can’t afford one.

We can help get you a buyout and new mortgage deal, start online below:

How Mortgage Buyouts Work

Let’s start by touching on how a joint mortgage agreement works:

A joint mortgage agreement lets you purchase a property with up to three others, although these mortgages are generally shared between two people. Each person contributes towards the monthly repayments, and if either fails to repay their share of the mortgage, the lender can repossess your shared home.

With their signed permission, a mortgage buyout allows you to buy out your partner and have them removed from the mortgage and the title deed. Once this is done, you’ll become the sole owner of the property and solely responsible for making all the monthly mortgage payments.

Why You Might Need a Mortgage Buyout

You might need a mortgage buyout if you find yourself in the following circumstances or similar:

• You bought a home with friends, but now one of them, for personal reasons, wants to move out and wants out of the mortgage deal.
• You inherited a property with your sibling, but they need the money or are leaving the country and would like to sell their share.
• You purchased a home with your partner but are now separated or divorced, and you’re looking to keep the house for yourself.

The Complications That May Come With Divorce

If you’re getting divorced in the UK, then it may not be as easy as simply buying out your partner. Divorce is a complex legal affair that often comes with many complications.

In fact, a very common point of contention is who gets the house at all. A judge will often have to decide on this; this often forces one party to buy out the other.

How to Get It Started With Mortgage Buyouts

First, you need to calculate how much equity, the value of the portion of your home owned by you and your partner, you both have. All you need to do is subtract your current mortgage balance from the market value of your home. You can hire a surveyor for a property valuation or request your lender to do it for a fee.

So, for example, if you owe £300,000 to your lender and your property is worth £500,000, then to calculate how much equity you both have, simply minus £500,000 by £300,000. You have £200,000 equity.

And if the agreement is that your co-borrower is to pay 50% of the mortgage, then you’ll have to buy out 50% of that, so £100,000, to remove them from the mortgage.

While a sum like this can seem quite daunting, there is a way to make the needed payment.

Remortgaging

So if you’ve calculated how much equity you have to pay and can’t afford to buy out your co-borrower from the mortgage deal, you could always try remortgaging.

Remortgaging is when you end your existing mortgage and take a mortgage on a property you already own.

By doing this, you release the equity you own back into the property, enabling you to pay off your partner. Although, now you’ll be responsible for paying off the entirety of the mortgage again.

Bear in mind that while you may have been able to get a mortgage with your co-borrower, alone, you might not be able to afford it, and even if you can, lenders might be reluctant to lend to you.

However, if you can afford to make the mortgage payments by yourself, then remortgaging may be a good option for you. Bear in mind that you’ll need the following documents (and possibly more), as requested by your new lender:

• Your ID document,
• Three months of bank statements,
• Three months of payslips,
• Your P60,
• Your address details,
• And anything else as requested.

This is all so that the mortgage lender can run an affordability check on you.

The Difficulties of Buying Someone Out

Buying out someone comes with challenges, most specifically, the costs involved. Exiting a mortgage will incur early repayment charges (ERC).

These penalties must be paid to your lender, typically between 1-5% of your outstanding mortgage balance.

In addition, proving to your lender that you can afford the mortgage repayments on your own may often be challenging. Typically, lenders will only lend up to 4.5 times (but it can be slightly less or more than this) your yearly income.

However, a guarantor mortgage may make it possible: this is when a close family member or a friend takes on a bit of the mortgage risk by acting as a guarantor. You can also factor in spousal maintenance payments, dividend income, and self-employed income on top of your salary, as many lenders will also consider these when making a judgment.

Options if You Can’t Afford to Buy Out

If buying out your co-borrower is too expensive for you, and you’re not interested in committing to a lengthy remortgage (or if that is also too expensive based on your current paychecks), then there are still a few options to consider:

Sell Your House

This is a simple solution that many may choose when deciding on who keeps the property seems too tricky or if keeping it is too expensive. Here you need merely to sell your house, repay mortgage debt, and keep your share of the sale proceeds.

Keep Joint Ownership

If the reason for buying out your co-borrower is divorce or a breakup, you might want to attempt to agree to stay on the property with them and share costs if you’re still on good terms with them.

You might also choose this option if you have children and want to keep the home together.

FAQs

How does a mortgage buyout work?

In a mortgage buyout, one partner gains control of the other’s mortgage share by buying them out. The other person’s name is taken off the title deed and mortgage.

How do I buy my ex out of the house?

To buy your ex out of the house, you’d have to pay them half of the equity you both have in the home. Sometimes they may have contributed more or less than you: you must contribute that equivalent amount then.

Can I get a second-charge mortgage to buy out my partner?

Yes, you can get a second charge mortgage to buy out your partner; however, this may prove very expensive. Consider whether you’ll be able to pay your and your partner’s mortgage on your own, along with the second mortgage.

Do you have to buy someone out of a house?

You have no choice but to buy out the person who wishes to leave and then proceed to make the mortgage repayments leftover yourself.

Can you buy out a co-borrower if you have a Help to Buy equity loan?

Yes, you can buy out a co-borrower if you have a Help to Buy equity loan. Although depending on how much it is and when you took it out, you should consider remortgaging as a means of buying out your co-borrower, as it may prove cheaper. Contact a mortgage broker like us for assistance.

How much does it cost to take someone off a mortgage?

How much it costs to take someone off a mortgage will vary depending on the equity they have in the property. Typically, however, you’d have to pay off their half of the ownership equity.

How do you get a name off a mortgage?

To remove either your or a co-borrower’s name off the mortgage, you’ll need to ask your lender for a modification to remove a name from the mortgage loan. And if this isn’t possible, then you or your co-borrower will need to refinance the home in a new mortgage.

We’re Here to Help

As mortgage brokers, we can offer mortgage advice on any problem you might be experiencing.

You can contact us at 0808 301 9509, or you can fill out our online form, and we’ll get back to you within two hours on weekdays and four hours over weekends and bank holidays.

Sources:

https://www.habito.com/hub/article/your-guide-to-buying-out-a-partner-in-a-mortgage

https://www.onlinemoneyadvisor.co.uk/remortgages/buying-someone-out/

https://www.onlinemortgageadvisor.co.uk/remortgages/mortgage-buyout/

https://www.bankrate.com/home-equity/home-equity-calculator/

https://www.unbiased.co.uk/life/homes-property/how-to-remortgage-in-the-uk-a-step-by-step-guide

https://boonbrokers.co.uk/joint-mortgage-partner-buyout/