Joint mortgages have become increasingly common among unmarried couples, friends, and family members looking to enter the property market together. But with the world changing, such as with divorce. This leads to the question: how to remove your spouse from the mortgage after divorce?
This arrangement allows multiple parties to share the responsibility of a home loan, making homeownership more accessible. However, circumstances can change, leading to situations where dissolving the joint liability becomes necessary. This article explores the options available for those seeking to untangle their shared mortgage obligations.
Understanding Joint Mortgages
A joint mortgage is a financial agreement where two or more individuals share responsibility for a home loan. This arrangement isn’t limited to married couples. You might want to buy a property with your family. By pooling your resources together, you might be able to get onto the property ladder.
It is your responsibility to have a contract in place for handling situations such as divorce, or when one party wants to sell (an exit strategy). But most people don’t. Therefore, let’s discuss your options when taking someone’s name off a bond.
How can I remove my name from a mortgage bond I signed with my partner?
In short, you have the following options:
- Sell the property and dissolve the business partnership
- Sell your share to your partner
- Sell your share to a third-party
Selling the property to remove your name from the mortgage bond
If a share of the property is sold, a new bond would be required, unless you have the money to close the bond in your back pocket. this might sound extreme, but many people don’t have the finances to buy out their partner. They might also not have the bond and transfer costs nor the need to keep the property.
Once the property is sold, each partner will receive their share of the profit.
Make sure you’re using an estate agent that is registered with the Property Practitioners Regulatory Authority (PPRA). Also fiercely negotiate the commission that will be payable. You will also be responsible for fees such as compliance certificates (COC) for electricity, wood dwellings and gas fittings. However, selling the property can be cheaper than refinancing a new bond, where bond and transfer costs might be payable again.
TOP TIP: If you’re in a rush to sell the property, you’re going to get a low price. If you have time, you might just get your price!
Property buy out
When buying the shares of your ex or the other party, it would mean an ownership change. This means you will either need to close the mortgage or refinance.
Buying the property in cash
If you have the home loan balance available in cash (through a cash settlement with your partner or agreement), you can give notice to cancel the mortgage bond. When giving notice, be sure to give 3 months’ notice to avoid penalty fees. These fees are generally the 3 months interest on the remaining amount.
Refinancing the property – a new loan
The most straightforward option is refinancing your home loan. This process involves the remaining borrower applying for a new loan in their name only, which is then used to pay off the existing joint home loan. It effectively establishes sole responsibility for the latest mortgage.
However, this option depends heavily on the remaining borrower’s creditworthiness and income, as they must qualify for the loan independently. It is recommended that the remaining borrower do a pre-approval with their latest financial situation, before attempting to secure a loan. This will lower the chance of going through the whole process, only to be rejected at the end.
A buyout may be the best solution for situations where one party wants to keep the property. This process typically involves determining the property’s current value, calculating the departing co-borrower’s equity share, and refinancing to remove the departing co-borrower while providing funds for the buyout. This option requires careful negotiation and clear documentation of the agreement to protect all parties involved.
Dropping the name of your spouse from your home loan
Section 45(2) of the Deeds Registries Act 47 of 1937 applies to people who are married in a community of property. When a spouse dies or in case of a divorce, a mortgage bond registered over the property, must either be cancelled, or the former spouse’s estate must be released from liability under the bond and the spouse who has acquired the property must be substituted as the sole debtor under the said bond.
Fees involved if you sell your stake in a property
If you sell the property or have a buy-out, then bond and transfer costs will be payable. In many cases, these can be negotiated down. The bank could also completely cover it if you’re a high-net-worth individual (or if you have excellent negotiation skills or contacts).
Ownership change is a taxable event. The proceeds will be taxable under the respective laws. Primary residences are treated differently from investment property. Therefore:
- Primary residences – R 2 million is excluded from capital gains tax (CGT) for individuals. It is split depending on the percentage of ownership. The remainder is taxed according to personal capital gains. For example, two people will have R 1 million profit each excluded from CGT.
- Investment property in your name is taxed with a R 40 000 exclusion, with 40% of the remainder being taxable at your PAYE tax rate.
Investment property in a company does not have the R 40 000 exclusion.
Selling your property to a company
Unfortunately, selling your property to a company or a trust doesn’t make it easier. A new bond will still need to be applied, and selling the property will incur taxes and attorney fees. If you don’t want to remove an ex from a mortgage, you can use a Section 42 asset for share transfer. Sec 42 has lower fees due to no bond and transfer costs being payable. However, all parties need to keep their shares for 3 years.
Legal Considerations and Documentation
Regardless of the chosen path, a property settlement agreement is key for a smooth transfer. This legal contract outlines the terms of the liability dissolution, division of property and assets, and future responsibilities. It also prevents misunderstandings and protects the interests of all parties involved. If you’re in the early stages of buying property with friends or family, you need a contract in place and a good property exit strategy.
It goes without saying that you will need a lawyer who will guide you through the process of removing someone from the home loan.
Conclusion
Dissolving joint liability in a mortgage is a significant financial and legal undertaking that requires careful consideration of various factors. Whether through refinancing, selling, or a buyout agreement, it’s essential to approach the process with a clear understanding of the available options and their implications. Open communication between all parties involved is key to achieving a smooth transition and resolution.
Happy investing!
