Q I own a flat with my friend as tenants in common. We have a deed of trust and each own exactly half the flat. Our mortgage eventually will be paid off in five to seven years.
The interest rate is high and I worry that at the end of our two-year fixed term it will be even higher. I have come into some inheritance money and want to pay off my share of the mortgage.
What do we need to do so we still own it 50:50 but leave one person to pay off their mortgage?
AW
A I wouldn’t do anything in a hurry because fixed-rate mortgages typically charge an early repayment fee if you pay off more than you are allowed to overpay during the fixed-rate period.
With the two-year fixed-rate mortgages listed in the mortgage selection in Moneyfactscompare, the fee is typically 2% of the outstanding mortgage balance in the first year of the fixed-rate period, falling to 1% in the second year. With other fixed-rate mortgages with different terms the fee can be up to 5% of the outstanding mortgage balance.
So until your two-year fixed-rate period comes to an end, I would useMoneyfacts
compare to find a savings account that pays the highest rate of interest available to put your inheritance money into. This is likely to be an account, such as the 120-day notice online account at Dudley building society paying 5.45%, which requires you to give 120 days’ notice before withdrawing money from the account to avoid losing interest.
But even when your two-year fixed-rate term comes to an end, I’m not sure that paying off your half of the mortgage is the best option. It certainly isn’t if you don’t have a pot of savings that you can dip into in the event of a financial emergency, or if you haven’t yet made any pension provisions.
And it really isn’t a good idea if you have more expensive debts such as an outstanding credit card debt, overdraft or personal loan. It would be better to use your inheritance to clear these more costly ways of borrowing before clearing your mortgage.
If you did pay off your half it wouldn’t make any difference to the way you and your friend own the flat as it would still be owned 50:50 as registered at the Land Registry. And you could leave one person to make the mortgage repayments each month. But if your friend was unable to do this, your lender would look to you as joint borrower to pay as you are jointly liable for the mortgage debt.
Personally, I wouldn’t want to take this risk. Instead I would look to remortgage at the end of the fixed-term period to avoid paying a higher rate of interest.
