Q My friend and I co-own a flat as tenants in common, each owning exactly half. Our mortgage will be fully paid off in five to seven years. However, I’m concerned about the high interest rate, especially when our two-year fixed term is up. I recently received an inheritance and I’m considering paying off my share of the mortgage. How can we ensure that we maintain equal ownership while allowing one person to pay off their portion of the mortgage?
AW
A I advise against rushing into any decisions because early repayment fees are common with fixed-rate mortgages if you exceed the allowed overpayment amount during this period. For two-year fixed-rate mortgages listed in Moneyfactscompare, the fee is usually 2% of the remaining mortgage balance in the first year, and 1% in the second year. Other fixed-rate mortgages may charge up to 5% of the outstanding balance depending on the terms.
Until your fixed-rate period expires, I recommend using Moneyfactscompare to find a high-interest savings account for your inheritance. Consider opening an account like the 120-day notice online account at Dudley Building Society that offers a 5.45% interest rate. However, keep in mind that this account requires you to provide a 120-day notice before withdrawing funds to avoid losing interest.
Even when your fixed-rate term ends, paying off your half of the mortgage might not be the wisest choice. This is especially true if you don’t have savings for emergencies or lack pension provisions. If you have more expensive debts like outstanding credit card debt, overdrafts, or personal loans, it would be more sensible to use your inheritance to clear those first.
If you do decide to pay off your portion, it won’t affect the ownership structure. The flat will still be jointly owned and registered as 50:50 at the Land Registry. You can then designate one person to handle the mortgage payments. However, keep in mind that if your friend is unable to make the payments, you will be held jointly liable for the mortgage debt as a co-borrower.
Personally, I wouldn’t want to take on that risk. Instead, I suggest considering remortgaging at the end of the fixed-term period to avoid higher interest rates.
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