The repurchase of balance is frequent during the painful events of the life, in particular a divorce or a death, implying the division of inheritance of the goods. It is at this moment that your lawyer, your notary or your banker speaks to you about “cash balance redemption”.
But what exactly is a cash balance redemption? What is the relationship with the mortgage? We explain it to you quite simply.
Repurchase of balance in real estate: definition
Before even giving you the definition of cash balance buyback, it is important to understand the global context in which it is appropriate and the related legal terms …
No balance without joint ownership
Joint ownership is a term used to designate property (movable, immovable or even intangible) owned by several people.
The most common is joint ownership of the main residence between spouses or partners, each of them was the owner of the property up to their contribution. But joint ownership also exists between heirs.
Joint ownership is therefore the economic sharing of a good between several people.
The balance in joint ownership
The balance is a term used to designate the financial compensation of one or more co-owners.
We often speak of a balance when the matrimonial regime is dissolved, following a death or separation, or during a succession when there are several heirs. But the balance also exists in the event of an exchange of goods which are not of the same value.
The balance is therefore the sum of money paid to a person to compensate for his renunciation of a good.
The repurchase of balance in the context of real estate
The repurchase of balance of real estate consists in paying a sum of money to one or more co-co-owners in order to become the sole owner.
Let us illustrate in a very simple way the case of an inheritance between parents and children. When both parents die, the family home worth 300,000 euros goes to the children. Three brothers who will be named Jacques, Jean and Martin share the inheritance equally.
Each therefore owns a third of the value of the property: Jacques, Jean and Martin are co-joint owners up to 100,000 euros each. Only Martin wishes to become full owner of the house.
To do this, he proceeds to the “cash balance buyback” and pays 100,000 euros to Jacques and 100,000 euros to Jean.
Very often, the repurchase of balance is made possible by the subscription of a mortgage …
Redemption of balance with the help of a mortgage, what interest?
During a divorce or inheritance, it is not uncommon for one of the spouses or one of the heirs to express the wish to keep the property. Here it is Martin.
The notary or lawyer will then explain to Martin that this operation is possible, provided that the balance is redeemed.
The calculation of the cash balance redemption
Whether it is in the context of a separation or a succession, the amount of the balance is determined in the same way:
- Either amicably: the former spouses or the heirs agree on the price of the cash payment
- Or by the intervention of a notary
In the event that the notary is responsible for calculating the balance, he makes a precise estimate of the property, taking into account its current value according to the property market.
If there are still loans to be settled, it also takes them into account, because each co-co-owner is required to participate in the debts to settle them. Thus, Martin and Sabine, who lived together in their Parisian apartment, separate after 10 years of marriage.
Martin wishes to keep the apartment, valued at 400,000 euros by the notary. But the couple still owes 200,000 euros to the bank. The balance he must pay Sabine therefore corresponds to half of the value of the property, from which we subtract half of the capital remaining due on the mortgage.
(400,000 / 2) – (200,000 / 2) = 100,000 euros
Financing of the repurchase of cash payment by a mortgage
Martin does not have such a sum and therefore goes to see his banker. Indeed, he is considering a loan of 100,000 euros to pay the balance he owes Sabine.
Good news, his banking establishment sees no objection. As the operation relates to real estate, it can even be financed by a classic mortgage at advantageous rates.
Martin is relieved, he will be able to stay in his Parisian apartment that he loves so much and make a new start on his own.
However, for his file to be accepted, he must meet certain conditions, which are the same as those for a mortgage:
- Do not exceed 33% of the debt ratio
- Prove that its income is stable and recurring
- Present neat bank accounts etc.
But in addition, he will have to pay additional costs, namely:
- Possible prepayment charges to settle the previous loan
- Emoluments of the notary, of the order of 7 to 8% of the value of the property
- Sharing rights, in the order of 2.5%, to be paid to the Public Treasury
Fortunately, Martin is smart, he always compares before signing and is determined to save as much as possible.
So, to obtain his bank credit with cash back payment, he uses an online simulator and accesses the best offers from banking partners. Do like Martin, be smart!