You can divorce your partner but unfortunately you can not divorce your mortgage. And just like your partner, your mortgage will take what’s right for you. One of the most stressful issues, when you go through a breakup or divorce, is the common debt. When getting a divorce, couples will not only divide the property, but they will also divide the responsibilities. Your mortgage is usually your biggest responsibility and should be managed fairly despite the conflicts that occur at home. Your mortgage lender does not care about your arguments and relationship issues. So put your emotions aside and handle the financial problems at your fingertips.
When buying your first home and putting your two names on a mortgage, couples almost never think how they will divide it if conflicts arise and the relationship fails. If you find yourself in such a situation, this article will help you decide how to divide your mortgage fairly.
Determine the value of the house
Before deciding what to do with your property and how you will divide the mortgage, you and your spouse need to determine the value of your home. Your house is probably your biggest asset and your most expensive debt, which makes it very difficult to divide. A real estate agent or appraiser could provide you with a detailed assessment of your home and how much it is worth. Once you have this value, subtract the balance owing on the mortgage, and you will get the current value or amount of capital related to your home. You and your spouse remain fully liable for the mortgage unless you sell the property or choose to refinance it. If you can not choose these options, explore the others carefully as they are very limited.
Sell the house
The simplest way to manage the splitting of a mortgage is to sell the house. The divorced couple should sell their property, pay the mortgage, and continue with their own separate lives. A divorce is a pretty sad period as it is. Instead of putting more energy into slowly paying off the mortgage, sell the house right away and you will not have to worry about accrued interest charges. Even if your mortgage is worth more than your house (short sale), the money from the sale of the property could be used to pay off part of the mortgage. Although a short sale may affect the credit rating of both members, it may be preferable to keep the mortgage in certain situations. Sometimes the bank will even agree to release the borrowers with the difference to be paid during the short sale. Also, do not wait until the last minute to sell your house. If you think things are not working that there is a possibility that you have to take a break or separate from your partner, make sure you give yourself enough time so that you can sell your house for the amount that wish you. If you sell in a hurry, you will not get the money you want.
Another way to split the mortgage of a divorce couple is to refinance the mortgage under the name of one of the spouses. This is a practical but expensive solution as one spouse manages to keep the house, but costs are incurred to reorganize the mortgage. Refinancing your mortgage includes paying legal fees, appraisal fees, and possibly vacation expenses from your current lender. Thus, even if the refinancing is favorable, several costs can accumulate quickly. Since divorces are quite expensive as they are, it may not be in your best interest to spend even more money on refinancing. So make sure you with the money to refinance if that’s what you plan on doing.
Know that this option is not the best for everyone. Whoever keeps the house must meet certain criteria in order to prove that he can handle the mortgage debt by himself.
- The couple must be up to date with their mortgage payments
- At least one spouse must have good credit and sufficient income (you can not qualify for refinancing unless you have a positive credit rating, credit history and sufficient income).
- One spouse agrees to leave the home to another. Once again, this may not be the best solution for you because of the demanding criteria and maintenance issues. Usually, it is very difficult for a single spouse to maintain a house. If you are struggling to get home with one income, do not refinance it. Instead, ask yourself if you can afford this house with an individual income.
Keep the house with the name of both spouses on the mortgage
This option is always a possibility, but usually a last resort. If you and your spouse can not make an agreement and can not sell or refinance the house, then you could keep the house with both names on the mortgage, while one of them moves. It is also the least favorable choice because the couple will have to fully report mortgage payments and other home-related costs on any future loan or credit application. This could prevent them from receiving another mortgage, thus hindering future financial needs.
Even if you are going through a tragic and emotionally difficult time in your life, it is still very important to stay on top of your finances. This means keeping a positive credit rating and credit history. Make sure you make payments on time and in full to maintain a high credit rating. Be responsible for your finances during this time and you will have access to better options for splitting your mortgage.