What is a Mortgage Buyout?

Co-owning your property with your spouse comes with a plethora of benefits. You enjoy enhanced purchasing power, and the responsibility gets shared too. However, this co-ownership might not last forever, and the couple may eventually opt for a divorce.

Even if you had purchased the property jointly with a friend, there is always the possibility that your relationship might not remain cordial over the years. Under such circumstances, selling off the co-owned house might be a tricky affair. Besides, one of the owners might not even be interested in selling the property.

Our experts will brief you on what to do in these situations in this post. The goal here is to get the most from the property while working with your co-owners wishes. We’ll also discuss how you can buy out your partner by (i) increasing your mortgage and (ii) remortgaging your property. Click on this link to know how you can buy out your partner in a mortgage.

What does a mortgage buyout involve?

A mortgage buyout refers to an arrangement when one of the property owners pays their respective share of equity in the property to the other owner. The co-owner then gets released from the mortgage.

When you buy out your partner in a mortgage, he is no longer recognized as a property owner in the deed.Therefore, you become the sole owner of the property!

If you’re considering a mortgage buyout, it’s important to consult with a mortgage note buyer who can provide guidance and facilitate the transaction smoothly. They can help assess the value of the mortgage and ensure a fair agreement for both parties involved.

Buying out your partner in a mortgage: How to go about it?

Your affordability is a major determinant in how easily you can buy your partner out from the mortgage deal. Unless you have adequate savings, you need to arrange additional money to pay the other person’s share in the property.

Moreover, you need to demonstrate your financial strengths. This should show that you are capable of paying the mortgage that was actually supposed to be paid by two persons.

Canada has several creditors who’ll readily calculate the amount you can afford to borrow. They follow different ways of calculating this amount. Also, you can use this mortgage calculator to get an idea of the amount you need to borrow.

Increasing your mortgage for buying out your partner

Here’s how you can buy out your partner by increasing your mortgage:

1. Refinancing buyout

You may have to shell out some money in case you decide to refinance and buy out your partner–for a fixed-rate mortgage. This type of mortgage involves certain charges, ERCs, and costs of early repayment.

When you wish to exit the deal, pay off the mortgage, or refinance within two to five years of taking the loan. You may also consult with a mortgage specialist or reach out to the lender directly to know the amount you need to shell out.

2. Cash buyout

You can go for a cash buyout if you’re interested in selling the property, while one or more owners want to retain it. In this case, an independent real estate appraiser needs to estimate the property’s fair market value.

Based on this, you need to enter into an agreement with the other co-owner regarding the property’s buyout price. The other person would pay you a lump sum amount and purchase your property share in these situations. This would end your ownership interest in the property.

Remortgaging the property to buy out your partner

Remortgaging is when you take a different type of property mortgage or a second mortgage. This is a viable option if you’re interested in buying out the mortgage. Again, you have several options here, so make an informed decision.

1. Remortgaging with the same lender

You can decide to remortgage the property with the same creditor by going for a product transfer. This is also referred to as an internal mortgage.

A simple swap might trigger a better rate from your perspective. Besides, the creditor might re-evaluate your financial strengths, as you would be taking over the lending terms. Of course, every lender would want to be reassured that you can afford the payments.

2. Remortgaging with a different lender

Often, remortgaging with a new lender happens to be an attractive option. The creditor would evaluate your financial strengths in a fresh light. They would rule out the fact that a joint mortgage was under your name.

Accordingly, they would release the approved amount to the first mortgage provider. This would effectively pay off the old mortgage. At the same time, you need to abide by the agreed terms as far as the new mortgage is concerned.

3. What to do if you are interested in keeping the property?

There might be situations where you want to move to a new place. However, you might also be interested in retaining the property that you and your partner used to own jointly. This means that even if you have no plans of residing in the same house, you still want to buy out your partner.

You’d look to keep the property’s ownership and then let it out to a tenant in such situations. But first, you need to buy out the mortgage. Moreover, you can also look to purchase another property by releasing equity.

Endnote

Both the owners need to cooperate to make mortgage buyouts effective. In case any of the owners refuse to let go of their share of equity, you might force the issue by placing a petition in the court. Note that this is a procedural requirement in case of divorce.

If you co-own the property with your spouse, file a complaint seeking partition. Here, the court would split the co-ownership, and you’d get your share of money from the property. Besides, the court may also order the co-owner to buy you out under certain situations.

If the process seems a little complex to comprehend, reach out to a mortgage specialist. An experienced and adept specialist will help you choose the best course of action and also guide you every step of the way.