What Happens to Your Mortgage After Divorce?
Divorce is not an easy process and can sometimes be complicated. There are many issues to deal with including children, assets and debt. Most couples biggest investment is their home. As a result, I am often asked, What happens to the mortgage after divorce? This is especially important if both spouses are on the mortgage or the person keeping the house is not on the mortgage.
The easiest solution is for the spouses to sell their home. However, often times the parents might want to keep the family home to maintain consistency for their children. Also, the market might be down so it might be hard to sell or the house is under water and the couple might not have enough funds to pay the difference.
If selling the home is not an option, then the couple can elect to refinance the home loan with only one spouse as the borrower and them being solely responsible for the new loan. This typically is pretty straight forward, but there can be issues with this option.
- The spouse that remains in the home might not being able to qualify for the mortgage by themselves.
- The current interest rate could be higher than the rate on the existing mortgage.
- There might not be enough equity in the house to satisfy an equity payment to the other spouse.
- The house is worth less than is owed on the mortgage.
If neither of these first two solutions to handling a mortgage after a divorce is an option, then it can lead to bigger issues. Often in this situation, one of the spouses will remain in the home, but either both borrowers or the spouse that is no longer living in the home will be responsible for the mortgage payments.
What happens if the person that no longer lives in the home stops making the mortgage payments? This can result in late fees, credit scores dropping and even possibly lead to foreclosure.
The reality is that dealing with a mortgage after divorce is complicated, but there are solutions to resolve this issue. Currently, interest rates are still historically low and there are more and more loan product options being developed daily. To ensure you make the best financial decision possible, speak to a trusted mortgage advisor and learn what your options are.