How to get out of your mortgage legally and without penalty
There may be many reasons why you want to legally get out of your mortgage. But is that possible? Also, can it be done without penalty and without damaging your credit rating?
How can I legally get out of my mortgage?
- Sell your home to repay the mortgage.
- Have your co-owner buy you out.
- Find a guarantor to help transfer 100% of the mortgage.
- Pay off the mortgage.
- Convert your mortgage to a buy to let mortgage and let to tenants.
- Transfer part of the property to a co-owner.
- Find an investor to babysit your mortgage.
How to get out of your mortgage legally
There are a number of ways in which you can legally get out of your mortgage. These solutions will leave you financially unscathed in the future. This to me is important to keep your credit rate in tact. It will allow you to move on with your head held high.
But getting out of your mortgage is not only about the mortgage. It can also be about any other parties who are named on the mortgage too.
For example, you may be looking to get your name off the mortgage after separation or divorce. I’ve been there and got that t-shirt, and it’s not nice at all.
In fact the situation I was in was worse. The partner (or wife at the time) was extremely violent. She was determined to destroy me both physically and financially! But that’s a whole new article or novel in itself!!
As an aside, if you are in a similar situation to this and you have an abusive partner. Please send me a message and I will contact you privately to see if I can help.
Instead you may simply want to take your name off a joint mortgage, which is linked to a house you bought with friends.
Whatever the reason, some or all of these solutions will help. Some may not be appropriate. But I hope you’ll find at least one that provides the solution to move forward.
1. Sell your house or flat and pay off your mortgage with the proceeds of the sale
The easiest way to get out of your mortgage is to sell the house or flat that the mortgage is secured on. Then use the proceeds to pay the mortgage off. I say the easiest way, but this isn’t always easy.
If you are in the middle of a messy divorce, agreeing to sell the house is one thing. But then agreeing on it’s value can be a whole new story.
But assuming you can agree on the value and the sale of your house. Either because you’ve somehow negotiated with your ex-wife or your ex-partner or indeed where you have an amicable situation. You will need to choose an estate agent to value and sell your home.
Unless of course you are going to sell your house without an estate agent.
During the time it takes to sell your house or flat, you must keep up repayments on your mortgage. But also, at the end of this process and assuming you have equity in your house, you will be able to split the remaining proceeds after paying off the mortgage.
What if you have negative equity?
If your house is in negative equity and you choose to sell it through an estate agent, you will be left with a certain amount of the mortgage to pay off in some other way.
This isn’t a problem if you have enough savings to clear the remaining balance. But if you and/or your partner or ex don’t have enough to clear the negative equity, you may have a problem.
But as with all things, there’s always a solution around the corner. See below for more details about ‘mortgage baby-sitting‘.
The other option open to you, where the amount you owe on your mortgage is more than what your house is worth, is to speak with your lender.
Lenders are sometimes willing to help. But they will be keen to find a solution that works well for them. Your mortgage lender would like to get paid in full. But plus any interest that’s due.
Sell to someone that buys houses to avoid an estate agent and estate agents fees
There are many businesses or individuals who are always on the lookout to buy homes to fix up and sell. If you sell your home in this way without using an estate agent, you save the estate agency fees. In other words, there’s no money out of your pocket to sell your house.
Selling your house to someone who buys house for a living can be a fast and effect way to eliminate your mortgage obligation.
When I say quickly, this can be done in under a week. But probably on average it may take around one month to complete the legals and surveys etc.
But if your reason for asking the question ‘how Can I Legally Get Out Of My Mortgage‘ is because you are in mortgage arrears, selling your house to a buy it quickly company means you beat the repossession and arrears problem fast!
The second option to legally getting out of your mortgage is for you to buy-out your ex-partner. Or for them to buy you out.
With this option you don’t involve estate agents. Unless you want to use an estate agent to value your house. This option does require agreement to what the house is worth.
This becomes tricky in situations that are less amicable. But that’s where if your house is sold through an estate agent, you take away some of the conflict.
Unless you and your ex-partner or friend are able to agree on the valuation of your house to sell on the open market, one of you will have to decide to keep it. In this case, who ever keeps the house will either alter the existing mortgage. Or arrange a completely new mortgage altogether.
But having said that, even in this scenario, both parties to the home ownership need to agree in the value.
However, if you and your ex-partner are unable to agree on a value for your joint-house, I suggest you ask at least two if not three agents to value it. You may feel awkward asking estate agents if you know you’re not going to be selling it with them. But estate agents are always happy to do this.
Estate agents will hope to get the business in the future. Also, you never know when you discover the value, you may decide to sell in any event.
Altering the existing mortgage
In order for the existing mortgage company to agree to take one of the parties off the mortgage contract, they need to be sure the remaining party can afford the mortgage on their own.
The mortgage lender will require the usual payslips or accounts if you or your ex-partner are self employed. If they are satisfied that the person taking over the whole mortgage can afford this, the process is fairly straight forward to have you removed from the mortgage and from the title deeds of the house.
To do this you will need to involve a solicitor. In fact the mortgage company will probably insist on this being the case.
Applying for a new mortgage
If you or your ex-partner need to apply for a new mortgage, this is done by going through the normal mortgage application process. The mortgage lending needs to stack up on the strength of the one remaining person’s application.
As with the above removal of one person from the existing mortgage, you will need to also involve a solicitor to deal with the paperwork.
But if neither of these options work because the remaining party cannot get agreement from the mortgage company to take over the whole mortgage. Or alternatively, you or they cannot arrange a new mortgage, you can look for a guarantor.
3. Find a guarantor to help your co-owner take over the full mortgage
If your mortgage lender is not willing to allow your partner to take over the full mortgage, encourage them to find a guarantor.
Lenders are not always willing to take one person off the mortgage. But sometimes by having a guarantor may be enough to persuade them. A guarantor will usually be a member of the family, or a close friend.
4. Pay off your mortgage so you become mortgage free
If you’re in the position where you’ve nearly paid off your mortgage, you could decide to pay off the mortgage completely. Or alternatively, to continue paying the mortgage payments until the mortgage is completely paid off.
But this option does rely on the divorce being amicable. If you are having an amicable split, you’ll be able to sell the home and split the entire proceeds at the end.
However, if the split or divorce isn’t amicable, this option may not work. But in any event you must continue to make the mortgage payments until such time as an agreement is reached.
5. Convert your current mortgage to a buy to let mortgage and let your house out to tenants
Have you ever considered becoming a landlord? If you have and you are willing to let your house out, then you could legally get out of your home-buyers mortgage and replace this with a buy to let mortgage.
But be warned, it’s against mortgage policy for you to take out a buy to let mortgage for you to continue living in the property.
What’s great about using a buy to let mortgage is that you can borrow on an interest-only mortgage. An interest only mortgage is one where instead of paying capital and interest, you only pay whatever the interest charge is on the loan.
But then the other benefit to this option and becoming a landlord is that the tenants pay your mortgage for you.
But beware the sometimes onerous duties of becoming a landlord
I don’t want to put you off being a landlord, but it’s not for everyone. There are certain rules and regulations you need to follow. Plus the present conservative government has it in for landlords.
They have come down heavily on landlords both in terms of an inequitable tax situation and in terms of biasing the tenant too.
If this isn’t a problem for you, then this is a good option to try. If your ex doesn’t want to be a landlord, you could use the buy to let mortgage to buy them out. However, you will require the services of an estate agent to value your house to see what it’s worth in order to agree the payout.
6. If the property is co-owned transfer a part of the equity whilst retaining a stake in the house
This option usually only works where the split is an amicable one. This option is where one person in the partnership agrees to transfer a part of the home’s value.
This can be done where the person who ends up owning a larger share of the house, will usually have paid-down enough of the mortgage to allow the other person to afford the remaining mortgage that’s left.
But by retaining a share in the house, you will be entitled to that percentage of the home’s equity when it is eventually sold on the open market.
7. Find an investor to babysit your mortgage so you no longer have to worry about what happens
Another good option is to find a mortgage-baby-sitter. This option works particularly well when there’s negative equity involved. This also works well if either or both parties are not able to afford the mortgage repayments.
This also works well where there are mortgage arrears involved. It’s important to act swiftly if this is the case. But it will mean you can ‘sell your house‘ at market value or sometimes above. But also this can be done very quickly too.
How a baby sitting of a mortgage works is the ‘buyer‘ agrees to buy the house at some point in the future. But at an agreed future value. This value may or may not be equal to or higher than the current house valuation. But during the time between when the ‘buyer‘ completes on the deal to buy your house, they will pay your mortgage for you along with all of your repairs, insurance etc.
This does require your lender to agree to this arrangement. But this usually involves a very easy telephone call to the lender. There are legal papers involved, but this is very straightforward and easily arranged.
It’s important to note that where a property is jointly owned, both parties to the ownership of the house must agree to this type of arrangement. If you’d like to explore this particular option, please contact us here.
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