Mortgages and Divorce
Are you recently separated or divorced, or are you considering getting separated or divorced? You’re not alone. The sad reality is that couples have been splitting up in record numbers during Covid times. Spending all that extra time together has been good for some couples, while it hasn’t been so good for other couples. This has led to a spike in relationships ending since the start of Covid in March 2020.
When splitting up, you’ll need to prepare a separation or divorce agreement. Many things are covered in that, including spousal support, custody to children and the matrimonial home. It’s the latter that we’ll talk about today.
If you have a mortgage on your home, you may be wondering what happens to it during a separation or divorce. This article is here to the various options for the mortgage on the matrimonial home during a divorce.
(Before we get started, just a quick disclaimer. Family law is complicated. Before you do anything, it’s important to consult with a good family lawyer.)
Keep Your Existing Mortgage
These are usually the options couples who are splitting up go with, at least for the short-term. While this can be fine for the short term until you figure out what you’re going to do with the matrimonial house, this can lead to issues later on. With both of your names still on the home, if your ex-spouse doesn’t make the mortgage payments as planned, it can also hurt your credit and make it tough for your to obtain a mortgage on your own in the future.
Refinance the Mortgage
If you want to keep your existing home, you could refinance the mortgage. When this happens, you’ll buy out your ex-spouse’s equity share and refinance the mortgage into your name only.
If you do this, you’ll want to make sure you work with a lawyer who’s well versed in family and real estate law. You’ll want your ex-spouse to sign the appropriate paperwork to say that she’s relinquishing any rights to the matrimonial home.
If the shoe is on the other foot and your ex-spouse is buying you out of the matrimonial home, you’ll want to make sure your name is off the mortgage and title; otherwise, the mortgage lender could come after you your ex-spouse falls behind on the mortgage payments.
Assuming the Mortgage
This is similar to the above option, except instead of refinancing the mortgage, you would assume the existing mortgage. You might want to do this because you can avoid potentially costly mortgage penalties under the refinance option. If you have a fixed-rate mortgage with a big bank, the penalties can end up being quite high. Likewise, you might have an excellent mortgage rate that you don’t want to break if mortgage rates are a lot higher today.
If you’re considering assuming the mortgage, you’ll want to make sure your mortgage lender allows it. Not all mortgage lenders do.
If your mortgage lender lets you do this, you’ll again want to make sure your ex-spouse fills out all the appropriate releases. Your lawyer can help you with that.
Sell the Home
If you can’t afford to keep the home on your own – you can’t qualify for the mortgage on your own – you can always sell it and buy a less costly home. This is quite common as well. With fewer people living at home, you may no longer need such a big home.