Borrowing Against Your Half Of a Property
What is a Half Interest Mortgage
A half interest mortgage or fractional interest mortgage is where one “tenant in common” homeowner borrows on their half of the home’s equity. Banks or Credit Unions do not offer products like this. Typically, only private mortgage lenders will invest in this style financing.
How much can you borrow using a partial Interest Mortgage
Usually you can borrow up to 50% of your half ownership in a property. This is dependent on the type of property, its location and how many owners are part of the property.
The basic calculation for this financing is to take the appraised value of the property dividing the value in half to get your half value.
Determining your half value of the home is simple. Divide that in half again giving you the maximum mortgage amount you could be qualified for.
If a mortgage is registered on title in both parties names, this will also be divided by half. This enables us to determine each person’s half obligation to the mortgage.
Now you simply have to minus your current half of the mortgage of your half of your value to determine the maximum mortgage you would qualify for.
Here is how to work out LTV for a fractional interest mortgage:
- Home is valued at $500,000
- There is a conventional mortgage of $150,000 with both parties on the name of this mortgage
- 50% of home value is $250,000
- 50% of mortgage is $75,000
- our 50% x $250,000 = $125,000 – $75,000 your half of the mortgage = $50,000 available to borrow from home equity (conditions apply)
Rates on partial interest mortgages are higher than other private home equity products. Higher rates are based on the degree of risk the investor is taking on by providing a fractional interest mortgage.