My significant other and I own a house together. I recently got an inheritance that makes it possible to totally pay off my share (50%) of the mortgage. How can I do that when he owns 50% and can't pay off the mortgage? I also could pay his half, should I pay off the whole mortgage and loan him his share and have him pay the mortgage to me?
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7You may also be better off investing the inheritance rather than paying off the house.– whatsisnameNov 16, 2015 at 2:17
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Not an answer to the question as stated, but I think inheritances are one financial item that are the sole property of an individual. If 'commingled' with joint assets, it's more complicated to separate out later.– user117529Nov 16, 2015 at 3:36
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5By "significant other", do you mean "spouse" (or other legally-equivalent arrangement, like a civil union)? Whether or not you are married probably matters. Also, what jurisdiction do you reside in? (And if it's the US, which state? This may matter, since different states have differing views on "community property".)– senshinNov 16, 2015 at 14:14
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12Money matters aside, being in the situation where only one of you is still having to make payments sounds like it would be utterly awful for relationship dynamics and even more of a mess if/when that blows up your relationship. Why not just find some other decent way to invest the money that lets you gradually withdraw to make your part of the mortgage payment?– R.. GitHub STOP HELPING ICENov 16, 2015 at 17:13
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1As some of the answers address, the way that you took out the mortgage matters? Is it joint tenants or something else?– user32479Nov 16, 2015 at 19:53
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6 Answers
Usually there's no such thing as "your share" of the mortgage
Typical mortgage agreements will have a joint mortgage for such joint tenants. Essentially this means that each of you is liable for the full amount of the mortgage - if one of you is unwilling or uncapable to pay, the lender can collect from the other and/or revoke the whole property as collateral and then it's up to the individual borrowers how they settle the matters between them.
It might be the case (though unlikely) that you had a separate 'your share' of property, and a separate mortgage where you are liable only for that part. But if it isn't so, you are unlikely to get such a change in conditions, it's not in the lender interests to accept such a change.
Practically, you can't.
First, in some jurisdictions (e.g. Australia) you are in a de facto arrangement; that is, in the eyes of the law what's yours is his and what's his is yours.
Putting that aside, there are generally two ways that two people can own a property: tenants in common, where it makes sense to talk of shares because they are absolutely detailed in the deed and joint tenants, where it doesn't because you own the property jointly i.e. you both own the whole property, you don't own half each.
If you own as joint tenants then in order to use the property as security for a mortgage, the mortgagee will require both tenants to sign the mortgage. It doesn't matter if the loan is in one name or two, the joint owners of the property must consent that it be used as security. If the loan is not paid the mortgagee can seize the property. Effectively you are still on the hook.
If you own as tenants in common then theoretically one of the tenants can offer their half as security. However, this means that if the mortgagee comes into possession of that half then they will need the other tenant's permission to sell the whole property, or they can sell their half if anyone is willing to buy (not many will be). Unsurprisingly, very few lenders are willing to take as security a property that they can't do with as they like on default. So, they will require you to go guarantor and put up your half as security. So you are on the hook again.
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4I don't agree that in 'most jurisdictions .. what's yours is his and what's his is yours'. Can you provide some evidence for this, clarifying what you mean by 'most jurisdictions'?– jwgNov 16, 2015 at 10:24
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1@jdmc The article was helpful, thanks. It states 'In the United States there are nine community property states'. Is this what you meant by 'most jurisdictions'? (Bear in mind there are around 50 states in the United States. Furthermore, there are several countries in the world which are not part of the United States.) This article also only relates to marriage, saying nothing about 'de facto marriage' or cohabitation, which seems to be the situation of the OP.– jwgNov 17, 2015 at 10:07
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@jwg: The "in most jurisdictions…" was Dale M's claim, not mine, and was probably overstated. The claim appears to assume that the partners are married and reside in a community-property jurisdiction. I just thought the WP article would help explain. I would rewrite the claim to say that if the partners are married and reside in a community-property jurisdiction, then the house is very likely community property, meaning that legally there is no "his half" or "her half" of the house or the mortgage. In any case, the rest of Dale's answer (after "Putting that aside") stands.– jdmcNov 17, 2015 at 15:25
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1Sorry @jdmc I simply didn't notice that you weren't the OP. Accordingly I felt the answer was rather dismissive and made it obvious the claim was overblown. In fact, it was a useful article for you to have linked to. I think the OP was in fact thinking about 'de facto marriage', but wrongly assumed that it is a legal right in many places (and maybe also that it implies community of property in all those places).– jwgNov 17, 2015 at 15:32
As others have said, there is no such thing as'your half of the mortgage' in the eyes of the eyes of the lender, so you cannot get it paid off and stop being liable. However there are a couple of ways you can proceed.
- Assuming that the terms of your mortgage allow, pay off 50% of the mortgage. Then get a lawyer to draw up an agreement between you and your significant other, stating that he/she is now responsible for the entirety of the remaining mortgage (actually you draw this up and sign it before paying off 50%). This agreement will not help you if your SO flees the country leaving you with the mortgage, since the bank will still come after you for it, but it should help you if you break up and argue about who is responsible for what.
- Refinance the house, paying off the current mortgage half with your inheritance and half with a new mortgage taken out in your SO's name alone.
answered Nov 16, 2015 at 18:00
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1Point 2 might work, but even at the same bank, there would be a cost to do this. And depending on the relationship, a joint property state might make some of it moot. Nov 16, 2015 at 19:08
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If the SO flakes out in option 2, wont the OP get totally shafted? Nov 16, 2015 at 19:15
One of the basic legal considerations of a mortgage is that it encumbers all borrowers, equally. That means, even if you are able to pay off your half... so what. You are still legally obligated for the other person's amount, no matter what since you are both co-parties to the mortgage. Even if the other person is an idiot and agrees to sign a lawyer's agreement as previously suggested, the bank doesn't care and has no legal obligation to recognize it.
Now, generally, inheritance funds that are co-mingled into the matrimonial residence hence become property subject to division under family law rules in most jurisdictions. To be candid, it is a mistake to co-mingle your inheritance funds into your mortgage. Most mortgage rates today are extremely low (below 3.5%) and you are better suggested (I won't use the term "advised") to invest your funds for a higher return.
Paying off your share is a bad idea, and your other idea is just as bad. It would not be wise for you to pay off the mortgage, and then make a personal loan to your SO for his share. What if he decides to stop paying? Are you going to foreclose on your SO? What if you die before the SO?
There are so many complications to that arrangement. Not to mention the change it makes to your relationship. Honestly, the whole idea just sounds like a mess to me. Keep whatever arrangement you have now and keep your windfall out of it. If it's working fine, don't mess with it. There are plenty of other things, better things, that you could do with your money.
disclaimer: i have no state-issued licenses to give advice, legal, financial or otherwise.
short answer:
no. but you could consider buying the house outright and then renting to your SO.
long answer:
i would recommend against paying down the mortgage. shared property is generally a bad idea, and mortgage rates are particularly low right now. assuming you are in the USA and are not married, your interests would probably be better served by investing the inheritance. in any case, from a legal perspective, it will be difficult to assign equity in the home on anything but a 50% basis. so, basically, 50% of any extra payments you make on the mortgage become your SO's equity. you could fight that 50% division in court, but it would be an uphill battle even with an explicit contract.
also, you might pay special attention to keeping the inherited funds isolated from your other assets. should your relationship end, your significant other could sue you for your assets (even if you were never officially married). however, inherited assets are generally protected from such suits as long as they are not co-mingled with other assets. even if your relationship lasts forever, any assets that might conceivably be considered shared are also exposed to other lawsuits (e.g. if your SO is sued for a traffic accident, your "shared" assets are fair game).
more generally, shared assets simply make everything more complicated. in order to have a more congenial relationship, i would recommend you eliminate them. in the case of the house, you could do so by becoming the sole owner and renting to your SO. alternatively, you could make your SO the sole owner and rent from them. perhaps you could set a dollar amount for monthly rent and let your SO decide if they would prefer to be renter or landlord.
