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What are the costs of buying someone out of a joint mortgage?
If you own a property jointly but things fall apart, you can buy out their side of the mortgage.
Joining forces with a friend or family member to buy a property together can be a great way to break into the property market, but things can get difficult when it’s no longer suitable for both of you to own a share in the property. If you want to buy someone out of a joint mortgage you need to know your ownership structure and who owns what (is it 50/50 or a different split?). You also need to work out who has paid for what in terms of mortgage repayments, stamp duty and property maintenance.
How much does it cost to buy someone out of a joint mortgage?
There’s a wide range of factors to consider when buying someone’s share of a property. You and your co-owner will need to agree on a fair price for that person’s share, considering factors such as:
- How much you both contributed to the deposit
- How much stamp duty each party paid for the purchase
- How much each person has contributed in mortgage repayments
- How much each person has paid for ongoing maintenance of the property
It’s worth pointing out that not all ownership structures are as simple as a 50:50 split. For example, one party buying the property may have a large deposit saved but earn a low income, while the other may not have any deposit to call on but has an excellent income-earning capacity, resulting in an ownership split such as 60:40 or 70:30. If both parties obtain independent legal advice, you will be able to work out how one person can be bought out in a deal that’s fair to both parties.
Before buying someone out of a joint mortgage, you’ll also need to calculate how much the property is currently worth. A property purchased for $500,000 a couple of years ago may now be valued at $650,000, so the property share purchase will need to be based on the home’s current value. You and your co-owner will need to work out the property’s value – examining recent sale prices, independent valuation etc – but obtaining independent legal advice is once again the best way to ensure that neither party is short-changed.
Other fees and charges
It’s important to remember that changing property ownership will often incur stamp duty, which is usually a charge of around 3.5–5% of the property’s value. However, stamp duty can be waived in certain circumstances, for example if you’re getting divorced and you and your partner have a formal separation agreement.
You will also need to remember to factor costs such as home loan refinancing fees and legal expenses into your calculations, and remember that the person selling their share may also have to pay capital gains tax (CGT) if the home is an investment property.
Last but not least, make sure you’ll be able to handle the ongoing financial commitment of paying off a mortgage by yourself before you go through with the deal.
Can I buy my partner out of a joint mortgage in a divorce?
There’s a common misconception that if you’re getting divorced and you’re taking ownership of the family home, you can simply take over your ex’s share of the mortgage. This is not possible in Australia; you will instead have to refinance to a new home loan that is in your name only.
Your solicitor will help you draw up a formal separation agreement to outline the rights and responsibilities of you and your ex and how your assets will be split. Having a separation agreement in place will also help you avoid paying thousands of dollars in stamp duty.
Before you buy
The process of buying someone’s share of a property can be made a whole lot easier if you plan for the future before you even buy the property. Each party who will own a share of the house should seek independent legal advice to determine their rights and responsibilities and the right ownership structure for the arrangement.
There are two options to choose from: joint tenants and tenants in common. Joint tenants own a property collectively but individually don’t own anything, and if one party passes away their property share can be automatically transferred to the other owner.
If you’re a tenant in common, you own a portion of the property – a share – which can be determined before you buy the house. If you pass away, that share is passed on to a beneficiary you nominate rather than to another owner.
Tenants in common is the more popular ownership option but it’s essential that you get a co-ownership agreement drawn up before you buy a property. This agreement will outline the financial contribution and ownership share of each party, specify who will be looking after maintenance costs and, importantly, also detail the exit strategy if someone wants to sell their share of the property or buy the other(s) out.
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Ask a Question
I’m looking into the possibility of buying out my tenants-in-common part-owner in our house which is fully owned by us. My ex-wife owns 25% of our house that is valued at about $750,000, so that means her share would be worth $187,500 at today’s probable valuation. The original title specifies this division of ownership. Can I get a loan for this amount if I agree to will the entire house to the lender upon my death as sole beneficiary. I’m in my mid-70s now. Please advise.
Hi Jeff,
You may be able to take out a loan but it really depends on each individual bank or lender’s lending criteria. Please take a look at potential loan options here.
You may also be able to look into refinancing and extending your Loan-To-Value Ratio.
With such complex situations, you might benefit from speaking to a mortgage broker about your specific circumstances.
All the best,
Rebecca
My ex is buying me out of the house we own, we have a formal separation agreement through our solicitors. My ex is currently sorting out finance with her bank and conveyancer, do I need my own conveyancer or can my ex’s conveyancer ensure the agreed sum is transferred to me once the bank has settled the loans?
Hi TK,
You should be able to use the same conveyancer, however, if any disputes arise during the process the conveyancer may find it tough to look after the interests of both parties.
Speak to your ex-partner’s conveyancer to see if it’s something they would be willing to do and consider whether you’d benefit from your own conveyancer.
Thanks,
Rebecca
Hi, my de facto partner has taken over the house we owned and I have received a payout. The separation agreement we have isn’t legally binding as it wasnt witnessed or reviewed by two separate solicitors. Does my ex partner need to pay the transfer duty?
Hello,
We can’t really help you here as this is a personal legal situation. I suggest getting a solicitor for legal guidance.
Kind regards,
Richard”
I have a home loan with my brother but he wants out and my son will come on the loan to refinance. How do we work out how much my brother is owed and how much stamp duty would we have to pay?
Hi Elise,
There are a lot of factors to consider when transferring someone’s share of a property, many of which are outlined in the article above.
First, you’ll need to calculate how much the property is currently worth. The stamp duty will be based on its current value, with consideration of the percentage of the property being sold. If it’s an equal half-share, then it will apply to 50% of the property’s value.
To determine the buy-out amount, you need to calculate how much you paid for the property versus how much it’s worth today. It would be best to seek legal advice from a solicitor for help, to make sure you come to an agreement everyone is happy with. It’s an investment of a few thousand dollars, but it could save many headaches throughout the process.
I hope this helps!
Regards,
Sarah
Hi,
I bought a property with my mother and then used the equity to buy another one, I live in the first ans she lives in the second, we are going to sell her house and I wish to buy her out. Will I pay 50% stamp duty on the property?
Hello Amy,
The amount of stamp duty depends on how ownership of the property is shared. If it’s a 50/50 arrangement, then you would have to pay 50% stamp duty. Some states and territories have exemptions for spouses but usually not for other relationships.
You can also consult an accountant or conveyancer for more information about your particular circumstance too.
Cheers,
Richard