Regardless of our planning and expectations, life has a way of throwing us unexpected curve balls. Divorce is never something that we plan for, so when it does happen, it is easy to feel unprepared. So, if you are in this position, no doubt you are asking- what happens to my mortgage? Luckily, divorce mortgages don’t need to be overly complicated. In fact, there are 3 options that you and your former partner can consider when looking to divide your assets.

1. Sell the Home

This option can carry a lot of emotional weight for those going through a separation. In addition to not wanting to lose shared memories, qualifying for a home loan individually that was previously based on two people’s incomes can be very difficult. Not only can selling a home offer a good way eliminate a large burden of financial responsibility, it also offers a good opportunity to sever emotional ties. Moreover, both parties receive half of the earnings of the sale (or whatever division of assets has been agreed upon by your lawyers).

 

2. Remove a Name from the Title of the Mortgage

It is important to note that this is not a common option. Lenders are often cautious to take on the increased risk that is often associated with allowing someone to be removed for a loan of any kind. To clarify, when you applied for a mortgage with your partner (or anyone else), both individuals are 100% liable for the repayment of that loan. This differs from a joint loan where each party takes on 50% of the responsibility. Therefore, if one person cannot pay, the other person is still 100% responsible for the outstanding balance on the loan.

Take a Closer Look - Let’s say Person A is planning on retaining the home and Person B would like to have their name taken off the mortgage agreement. To do this, Person A must be able to qualify for the full amount of the remaining mortgage. This will likely require a refinance which means Person A will be charged refinancing costs and fees. Person B must go to their lawyer to be taken off of the land title, and file a quitclaim.

*Only once a lawyer removes a name from the land title will that person be no longer responsible for any mortgage payments.

 

3. Buyouts

Ex-spouses who previously signed a mortgage together have the option to buy one another out. The person who is keeping the home (let’s say Person A), will have to buyout the equity of the co-owner (Person B).

Crunch the Numbers - Let’s say the mortgage was for $600,000 and you have a remaining balance of $450,000 left to be paid. This means that the joint equity is $150,000 between both parties. This is usually split evenly between the co-owners.

$150,000 / 2 = $75,000

So, in order for Person A to buy Person B out, they need to pay Person B $75,000. This will usually require a refinance of the mortgage for Person A.

There isn’t a one size fits all solution. This blog gives you a starting point to understanding how to move forward in this difficult situation but your mortgage advisor can help you find and truly understand the option that works best for you.

Your home is an important building block in your financial foundation, so take the time to properly evaluate your options. The last thing you should do is rush to a solution that isn’t ideal, just for the sake of getting out of a less-than-ideal situation. So, with some education and help from those around you, remember that everything will work out in the end.

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