Adding A Co-Borrower: Adjusting Your Mortgage Agreement

Adding someone to an existing mortgage is possible, but it involves a similar process to applying for a new mortgage. The first step is to contact your lender and ask for approval. They will need to assess the financial situation of both parties, including credit history, income, and overall financial stability. If approved, the lender will provide a joint account. If not, you may need to consider remortgaging or getting a new joint mortgage. It is important to carefully consider this decision, as it creates a financial partnership where any financial actions will affect both individuals. Additionally, the type of tenancy should be decided, as it will determine how much control each party retains over the property.

Characteristics and Values of Adding Someone to an Existing Mortgage

The financial implications of adding someone to your mortgage

Adding someone to an existing mortgage can have several financial implications that should be carefully considered before proceeding. Firstly, it is important to note that the process of adding someone to a mortgage typically involves a new application, credit checks, and potentially higher interest rates if the additional person's credit score is lower. This means that the lender will assess the financial situation of both parties, including income, credit score, and affordability, which may impact the overall cost of the mortgage.

One key financial consideration is the impact on the initial deposit. If the original owner purchased the property alone and later added someone to the mortgage, a joint tenancy agreement would typically result in an equal split of the property, regardless of the initial deposit made. To mitigate this, an equity transfer mortgage or a tenants-in-common arrangement can be explored to allow for an agreed-upon percentage of ownership that reflects the financial contributions of both parties.

Additionally, in a tenants-in-common agreement, it is easier for one party to force the sale of the property against the other party's wishes due to the unequal division of ownership. This arrangement also allows a party to sell their share of the property at any time, which could result in owning the property with an unfamiliar or less-than-ideal co-owner. It is important to carefully consider these potential outcomes and their financial implications.

Furthermore, adding someone to an existing mortgage may impact the interest rate. Refinancing or remortgaging, which is often required when adding someone to a mortgage, can result in obtaining a new loan at current interest rates, which may be higher than the original rate. This could increase the overall cost of the mortgage.

Finally, it is crucial to plan for contingencies and unforeseen events such as death, divorce, or financial difficulties. A legally binding document should outline how costs will be divided, how ownership will be determined if one party wants to sell, and what will happen in the event of a breakup or death. These considerations can have significant financial implications and should be carefully addressed to protect both parties' interests.

The legal process of adding someone to your mortgage

Adding someone to your mortgage can be a practical solution in some situations, but it's important to consider the potential downsides and legalities. Firstly, you will need to contact your lender to see if you can simply add the person. However, it is likely that the lender will require you to refinance your home and take out a new mortgage. This process will involve a comprehensive financial assessment of both parties, including credit history, income, and overall financial stability.

Before proceeding, it is crucial to have an open conversation with the person you wish to add and be transparent about financial history and specifics. This is because both your incomes, credit scores, and financial situations will be considered by the lender. Additionally, you should be aware that adding someone to your mortgage creates a financial partnership, meaning any financial actions will affect both individuals.

There are two main types of tenancy when adding someone to a mortgage: joint tenancy and tenants-in-common. In most cases, solicitors will use a joint tenancy for joint mortgage arrangements, resulting in equal shares of the property. However, if there is an unequal contribution to the initial deposit and existing mortgage payments, a tenants-in-common arrangement may be more suitable. It is important to note that in a tenants-in-common agreement, a party can sell their share of the property at any time, which could result in owning the property with a stranger. Therefore, it is recommended to have a legally binding document that outlines how costs will be divided, what happens in the event of a breakup or death, and other relevant contingencies.

Furthermore, you may want to explore alternative options such as making a private agreement or setting up a joint bank account specifically for mortgage payments. Additionally, consider the impact on your initial deposit, as a joint tenancy agreement may result in losing the deposit you have previously paid. An equity transfer mortgage or a cohabitation agreement can help equalize the finances in such cases.

The pros and cons of adding someone to your mortgage

Adding someone to an existing mortgage can be a practical solution in some situations. However, it is important to consider the potential downsides. Here are some pros and cons to help you understand the implications of adding someone to your mortgage:

Pros:

• Shared Financial Responsibility: Adding someone to your mortgage can help distribute the financial burden. This can be beneficial if you are finding it challenging to manage the mortgage payments on your own due to changed income or increased expenses.
• Improved Eligibility: If the person you add has a stable income and good credit history, it may improve your eligibility for a larger loan or better mortgage terms. Lenders consider the financial situation of all parties involved, and having an additional income source can strengthen your application.
• Stake in the Property: Adding someone to your mortgage gives them a direct stake in the property. This can be especially relevant for spouses, parents, or children, ensuring they have a claim to the property, especially during inheritance.

Cons:

• Loss of Control: Adding someone to your mortgage means forfeiting your absolute right to the property. The type of tenancy agreement will determine the extent of control you retain. In a joint tenancy, both parties typically have an equal 50/50 split of the property.
• Impact on Initial Deposit: If you originally purchased the property on your own and later added someone, you may lose the benefit of your initial deposit in a joint tenancy agreement. This is because both parties are now entitled to an equal split of the property, and the deposit is usually a percentage of the property's value.
• Financial Risk: The person you add becomes jointly responsible for the mortgage payments. If they face financial difficulties or have credit problems, it can affect both your credit scores and make it challenging to keep up with the payments.
• Legal and Administrative Processes: Adding someone to your mortgage typically involves legal and administrative processes, which can be time-consuming and expensive. You may need to refinance or take out a new mortgage, and both parties will be subject to the lender's requirements, including providing income, credit score, and identity verification.
• Potential for Unfair Decision-Making: In a tenancy-in-common agreement, where ownership percentages are unequal, decision-making may also be uneven. One party may have more influence over property decisions, and it can be challenging to reach an agreement that satisfies both parties.

How to add someone to your mortgage

Adding someone to an existing mortgage is a process that can be done in several ways. Firstly, it's important to note that adding someone to a mortgage creates a financial partnership, meaning any financial actions will affect both individuals. Therefore, it is crucial to have a detailed conversation with the person you want to add, discussing their financial history and how their finances will affect your chances with the lender.

The next step is to contact your lender and ask for approval to add a new name to the mortgage. The lender will then assess the financial situation of both parties, including credit history, income, and overall financial stability. If the lender approves, they will provide a joint account. If not, you may need to consider remortgaging or getting a new joint mortgage.

Another option is to create a private agreement with the person you want to add. This could involve setting up a joint bank account for mortgage payments or having the person pay you each month, similar to a landlord-tenant arrangement.

If you want to add someone to the deed of the house without them being legally liable for the mortgage, you can do so through a quitclaim deed or by drafting a cohabitation agreement. However, it is important to note that this process can be expensive and may require legal assistance.

Finally, it is recommended to consult a lawyer to create a legally binding document that outlines how costs will be divided, what happens in the event of a breakup or death, and other important considerations.

Alternatives to adding someone to your mortgage

Loan assumption

If refinancing isn't possible due to financial constraints, credit issues, or lender restrictions, a loan assumption is an option. This involves one party taking over full responsibility for the mortgage with the lender's approval. However, this option is not always available and depends on the original loan terms and lender policies.

Loan modification

Another option is a loan modification, where the lender agrees to alter the terms of the existing loan to accommodate the change in borrowers. This can be a viable solution to keep the home without refinancing.

Private agreement

If you don't want to go through the hassle of refinancing, you can set up a private agreement with the other person. This could involve them paying you a monthly amount, similar to a tenant-landlord arrangement, or contributing to a joint bank account specifically for mortgage payments.

Equity transfer mortgage

An equity transfer mortgage allows for an agreed-upon percentage of ownership of the property. This can help equalise finances, especially if one person has made a larger initial deposit. However, it's important to weigh the short and long-term financial implications before proceeding.

Adding someone to the deed of the house

If you want someone to have a stake in the house, especially for inheritance purposes, adding them to the deed of the house can be an option. This process can be expensive, and while it gives them ownership, it doesn't make them legally liable for the mortgage.

Frequently asked questions