Can you mortgage a ½ interest in a property? The answer is maybe.
If you’re approached by a borrower who is on title to a property with someone else, maybe a spouse or maybe a business partner, and they want to do an equity-take-out of just their ½ interest, what do you do? In general lenders want to be able to foreclose on and sell the whole property. If they take only a ½ interest as security, that means they are only able to sell ½ at the end of a foreclosure. Or worse, they end up as a co-owner of the property with the other person on title. So as a rule, lenders don’t lend on just a ½ interest.
There are some exceptions. Some private lenders will lend on these in matrimonial situations where they know the property will be sold at the end of the divorce process and one of the parties just needs funds to pay the lawyers and other related expenses. In other words there is a clear exit for the lender.
The other exception is where a property is being taken as additional collateral. For example if someone who is on title to a property jointly with another person, then wants to buy another property in their own name and the LTV is slightly too high, the lender may be willing to register a new mortgage over the new purchase property and blanket the new mortgage over the ½ interest in the original property.
If you’re presented with a ½ interest mortgage request, the best advice is to call around to all of your MIC and private lending partners. They may not be able to do it, but they may know of someone who can.