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UK Homeowner Advice For Selling Your House Fast

By Ben Kennish

How Can I Legally Get Out of my Mortgage? Here are Your Seven Main Options

How to legally get out of a mortgage

When it comes to getting out of a mortgage, it can be a tricky process. Usually you’re legally bound to a fixed term when it comes to paying your mortgage, and if you want to exit it before this point, things can get a little complex.

But what if, for personal reasons, you come to a point where you need to legally exit the terms of your mortgage before they’re up, but is it possible to do this, without penalty, and without affecting your credit score – which will in turn negatively impact any future loans to apply for? The answer is, yes.

There are seven main options that you have to choose from when attempting to legally leave your mortgage early, and today, we’re going to cover each of these in some detail.

 

How to Get Out of Your Mortgage Legally – Some Background Information

Before really delving into the thick of things and starting to look over the seven main options you have if you wish to exit your mortgage legally, we think it’s important to take a look at some background information in regards to exiting your mortgage term, early.

  • The options we are going to look over aim to help you to legally exit you’re your mortgage, without scathing you financially into the future.
  • One of the most important things is to avoid negatively impacting your credit rating, as this will have a negative impact on you in the future. You want to be able to exit the mortgage legally, and move forward without worry or reservation.
  • Remember, however, that in many cases, it’s unlikely that one singular person will be named on the mortgage. Instead, it’s likely the case that this will impact, not only you, but any other parties named on the mortgage as well.
  • A prime example of this becoming an issue, would be in the case of separation or divorce. It’s not an easy situation to be in, either legally or generally.
  • In some cases, one named party will have an abusive or unfairly behaving partner, who tries to take them for everything they are worth financially. This isn’t a pretty situation whatsoever.
  • However, in some cases, people will simply buy houses and acquire mortgages with friends! This is a little easier, as it’s likely that all you’ll want to do is take your name off the joint mortgage with minimal hassle.

Basically, what we’re trying to say, is that there are a multitude of reasons why you may want to exit your mortgage.

Today, we aim to give seven solutions to doing this legally. Not all of these will be appropriate for everyone’s individual circumstances, but we hope to be able to provide you with at least one logical and doable solution.

Let’s get to it then, shall we?

Solution One: Sell Your Property On

The first, and most obvious solution to exiting your mortgage and getting out of the contract, would be to sell the property on which you secured the mortgage. Let’s look at that in a bit more detail.

  • In doing this, you’ll use the profit you made on the sale of your property to pay the mortgage off. Unfortunately, this isn’t always as simple and straightforward as it sounds.
  • Say for example, you’re selling as the result of a messy separation or divorce. Selling the house should be a fairly doable conclusion to adhere to, right? However valuing it correctly can be an entirely different story.
  • For the sake of this example of a solution, however, we’re going to assume that you’ve managed to negotiate and come to a conclusion about selling. Following this, it’s vitally important that you have an estate agent come out and properly value your home.
  • In some cases, however, home owners may choose to attempt to sell their home without instructing an agent.
  • However, do remember that during the period in which you’re trying to sell your property, it’s vital that you keep up with all of your mortgage repayments.
  • We’re going to assume, that hopefully, at the end of this process you’ll have some equity on your house.
  • If this happens to be the case, then both parties can split the remaining proceeds of the equity, after they’ve used the rest of it to pay off their mortgage.
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What Happens if You’re in Negative Equity?

In some cases, however, home owners may find themselves as being negative equity, which is less than ideal if they want to leave their mortgage.

  • If your property is in negative equity and you choose to sell through an estate agency, chances are you’ll be left with an amount on the mortgage that you then have to pay off in some capacity.
  • So long as you have the funds in savings to pay off the remaining amount, then this shouldn’t become an issue.
  • However if you and other parties involved in the mortgage do not have the funds, then this is going to be a problem unfortunately.
  • Luckily, however, this isn’t uncommon, and therefore there is a solution! This is often referred to as “mortgage baby – sitting”.
  • This option is up to you to seek out, and you will do so by having a talk with your mortgage lender.
  • In some cases, lenders will be more than willing to help, but remember that they’ll want this solution to work in their favour too, which usually means that you will end up having to pay out in full, with interest on top.

Sell to an Individual that Buys Houses, rather than an Agency, to Avoid Paying Fees

There are individuals who buy property, which would mean you could sell without having to pay extortionate estate agent fees.

  • A lot of the time, these individuals are looking for properties to fix up and sell on.
  • As well as not paying estate agent fees, the good news is that you won’t have to pay for renovation or get the property ready for viewings. Win – win!
  • In some cases, this can also be done surprisingly quickly – as in as quick as under seven days.
  • However, on average, we would estimate that these kind of sales take around a month, taking into account the legal processes etc.
  • If your reason for selling was because you were in arrears, then this would be a good option for you to consider.

 

Solution Two: Buy Out the Other Party

If you are exiting your mortgage due to separation or divorce, then one solution is for one party to buy out the other.

  • This can be difficult in situations where you can’t agree on the value of the property. An estate agent could diffuse some of this conflict.
  • If you and the other party – or parties – cannot agree on a price to sell the property for on the open market, then this is likely to become the next available option. The person keeping the property would have to change the terms of the mortgage, or arrange a new mortgage altogether.
  • Remember this – you both must agree on the value of the property either way.
  • If you do come to a point where you’re unable to agree on the value of the property in question, then we would suggest asking a few different professional estate agencies to come and value it.

Altering the Existing Mortgage

In order to alter the existing mortgage, the following must be considered:

  • The mortgage company must agree to one of the parties being taken out of the agreement, and that the remaining party can afford the mortgage on their own.
  • If either you are the other party are self – employed, the lender is likely to request payslips and accounts.
  • If satisfied with this, then the process is straight forward, and the requested name will be removed off the mortgage contract.
  • Chances are you’ll have to instruct a solicitor to do this successfully.
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Applying for a New Mortgage

In order to apply for a new mortgage, the following must be considered:

  • The remaining party will have to go through the normal mortgage application process.
  • It’s likely you’ll have to instruct a solicitor to deal with the paperwork.
  • If neither of these options work, because the interested party cannot get approved for the mortgage, then you have to look at other options.

Solution Three: Find a Guarantor

If neither of the above solutions work out for you, the next step would be looking to find a guarantor.

  • Usually a guarantor will be a family member or close friend.
  • The agreement is that if you default the loan and become unable to pay your mortgage, then the guarantor will be responsible for covering any shortfall.

 

Solution Four: Pay Off the Mortgage in Full

If you have the financial means to do so, then you could consider paying off the mortgage in full.

  • Sometimes, this is the case when the home owner in question has very nearly paid off the mortgage in full.
  • Alternatively, you could continue to make mortgage payments until it’s paid off altogether.
  • If you’re going through a divorce or separation, this would require the circumstances of it to be amicable enough to come to an agreement.
  • In a more tense scenario, this might not work. If this is the case, mortgage payments must continue to be made until an agreement is met.

 

Solution Five: Change to a Buy to Let Mortgage

You could also consider changing your residential mortgage to a buy to let deal instead.

  • This would require you becoming a landlord, and in turn, renting out your property to tenants.
  • This will legally allow you to get out of your current mortgage, and change it to a buy to let.
  • If you continue to live in the property, however, this is against mortgage policy.
  • The great thing if you choose to do this, is you can borrow on an interest – only mortgage. This means instead of paying a capital and interest, you’ll only have to pay whatever the interest charge on the loan is.
  • Your tenants will effectively pay the mortgage for you with their rent payments.

 

Things to Consider

Being a landlord isn’t an easy job, so consider the following things before committing to it:

  • You’ll have to follow certain rules and regulations by law.
  • The current government has come down heavily on landlords in terms of tax. They’ve even been considered to bias the tenant.
  • If neither of these is an issue, then this could be a viable option for you to try.
  • Remember that you will need to employ an estate agent to value your house in order to agree to the pay out, by seeing what it’s worth.’

 

Solution Six: Retain a Stake in the Property

The sixth solution would be that you choose to retain a stake in the property.

  • This will only be likely to work in amicable situations.
  • One person will agree to transfer a part of the home’s value to the other.
  • Usually, when this is done, one person will end up owning a larger share of the property than the other.
  • Typically the mortgage will have been paid – down enough so that one person can afford to pay the remaining sum of the mortgage that’s left.
  • Remember, however, that by retaining a share of the house, you will also be entitled to any equity on the property – which is no bad thing at all!
  • This becomes relevant once the property is eventually sold on, on the traditional, open market.
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Solution Seven: Find a Party Who Will Baby – Sit Your Mortgage

Finally, we come to solution number seven, wherein your final option would be to find a party who is willing to baby – sit the mortgage for you temporarily.

  • This works particularly well when there is negative equity involved, or where one of both parties cannot afford repayments.
  • This is also a good solution for those who are in mortgage arrears. If this is the case, be sure to act on it quickly.
  • It can also mean you’re able to sell the property on at mortgage value, or even above.
  • This works by the “baby – sitter” agreeing to buy the house at some point in the future, at an agreed future value. During the time between the baby – sitter or buyer purchasing the property and the final transaction occurring, they will effectively pay your mortgage repayments for you.
  • In order to do this, your lender must agree with the arrangement. This should be easily done by you simply having a conversation with them about it.
  • There is likely to be some legal paperwork involved, however this is, again, easy to arrange and have completed.
  • Remember, that if the property happens to be jointly owned – which is something we have mentioned throughout this guide – then both the parties who share ownership of the house must agree to the arrangement prior to it being put in place.
  • Again, this is a lot easier to do in an amicable situation, but can also work in difficult separation scenarios, so long as the two parties can come to an agreement.

 

We hope we have helped you to better understand the legal solutions to exiting your mortgage before the end of the term, today. It can be a little tricky in places, but as you can see, regardless of your circumstances, it’s not altogether impossible. There is an option for everyone, it’s just about finding the right one for you.

Thank you for reading!

 

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Ben Kennish Property Solutions
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2 Tallis St,
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ben@benkennish.co.uk

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