What is a mortgage buyout?
When you take out a mortgage product with another person, you are both equally responsible for making the monthly repayments. However, you are both liable for the repayments, even if only one of you does not pay. This means that if your partner stops paying their share of the mortgage, the mortgage lender will approach you for repayment of their share as well as your own.
When you buy somebody out of a mortgage, you are taking over their share of the mortgage and of the property. The second person will no longer be named on the mortgage or on the title deeds for the property. This is applicable to both joint tenants and tenants in common.
When you take over someone’s share, this is called a transfer of equity. As you often need to borrow more money to achieve this, remortgaging is often to facilitate a mortgage buyout.
There are many reasons why people find themselves in this situation. Such situations include:
- A couple who purchased a home together, but the relationship has since broken down
- Friends who purchased a home together but now one would like to move in a partner and start a family
- Family members purchasing a home together due to affordability, but now are financially stable enough to buy a home on their own
Whatever the reason for needing a buyout, there are options available to you and the person you share a mortgage with.
Working out the cost of a buyout
To successfully buy somebody out of your property and mortgage, you will need to pay them their share of the equity that is in the home.
To do this, you firstly need to look at how much the property is worth. Many estate agents offer free valuations and can easily be booked in to visit your home. Often, they will give you their valuation on the same day, or even during the home visit.
You then need to look at the outstanding balance on your mortgage. Once you have the outstanding balance and the valuation, you can calculate how much equity is in the property.
You’ll have to pay the person you want to buy out their share of the equity. This can be more complicated to work out if you did not pay equal amounts each month towards the mortgage. To remove the other person from the mortgage, you must pay them their share before you can have their name removed from the mortgage and the title deeds of the property.
Remortgaging to gain equity for the buyout
To acquire the equity to conduct the buyout, you can ask your lender if you can remortgage. They will assess your income and your outgoings to determine whether you can afford the monthly repayments on your own. You should assess your affordability first before applying to make sure this is a viable option for you financially.
If you need to borrow a substantial amount, you should seek advice from a mortgage broker who can look at deals available across the whole of the market rather than only looking at the deals with your current lender.