Ending a marriage is rarely easy. There are social, emotional, and familial entanglements that need to be sorted out. There are also practical matters and financial ties that need to be handled, especially if the couple mingled their finances and owned property jointly. What happens to a mortgage after divorce? The answer to that question depends on the couple involved, their financial situation, and the actions that they choose to take.
Mortgage After Divorce
As The Balance explains, a divorce doesn’t automatically change the status of your mortgage. As far as the lender is concerned, if a person’s name is on the loan paperwork, then they are responsible for the debt. The matrimonial state of the individuals involved in the agreement is irrelevant, so a divorce decree doesn’t magically make the financial obligations that you took on when you took out a home loan vanish. If you’re a homeowner who is dealing with a divorce, you’ll have to take steps to deal with your mortgage. What are your options?
Sell the Home
Selling your house is one way to put an end to the mortgage question. As Money indicates, it is also the cleanest way to cut this financial tie. From a practical standpoint, selling the home, paying off the mortgage, and splitting any profits allows both former spouses to walk away with a clean financial slate.
What if one or both partners want to keep the home? Then, arranging for a sale might not be the right solution.
What if the marital home is underwater? If it is impossible to sell the house for a price that would clear the mortgage, you might be able to get the lender to agree to a short sale. If not, then you’ll have to choose another path.
Refinance the Mortgage
If your partner wants to keep the home and is willing to assume the responsibility of making the mortgage payments, it’s a good idea to get your name off the loan. If you don’t, your credit is at risk if your ex misses a payment or defaults on the loan. But as HomeLight points out, lenders rarely agree to simply remove a borrower’s name from a loan. The only certain way to get your name off a mortgage loan is to see that it’s paid off. Selling is one way to accomplish that goal, but it’s not the only possibility. You could also refinance the mortgage.
Refinancing replaces an existing mortgage with a new loan. If the spouse who intends to keep the house after the divorce refinances, it provides an opportunity for their ex to sever their legal rights to the property and their connection to the debt. However, the ability to refinance isn’t guaranteed. The person keeping the house will need to have the financial wherewithal to qualify for the loan alone. In fact, they may need to qualify for a larger loan since they will likely need to buy out the departing partner’s equity. Fortunately, there are a variety of loan programs that allow homeowners to refinance when their situation isn’t optimal.
Still, there are times when refinancing simply isn’t possible, so splitting spouses will need to go another route.
Keep the Existing Mortgage
What happens to a mortgage after divorce if neither selling nor refinancing is an attractive option? According to The Mortgage Reports, one possibility remains: You can keep the existing mortgage. It may be that refinancing isn’t possible or would result in a higher interest rate. Or, it could be that the real estate market is weak when the decision to divorce is made, and you hope that waiting awhile will give the market time to recover. Alternatively, both of the parties involved might consider the property to be an excellent investment and be reluctant to relinquish their share.
Whatever the reason, divorcing couples can choose to leave an existing mortgage unaltered. While it would be unusual, the two people involved may decide to continue sharing the property, with each paying part of the mortgage payment. Renting it out and using the income to pay the mortgage is also a possibility. However, anyone choosing this path should proceed with caution. Remaining on the mortgage means that your credit can take a serious hit if your former partner fails to meet their responsibilities. It may also interfere with your ability to purchase other property.
At PrimeLending of Springfield, Missouri, we understand that every couple’s situation is unique. That’s why our team of experienced loan officers takes the time to really listen to your goals, understand your needs, and help you discover your options and their respective pros and cons. With an extensive range of loan products on offer, we’re able to help borrowers buy, refinance, or renovate so that they can achieve their goals. To learn more about our services or request a consultation, contact us today.