Although divorce is increasingly common in the 21st century, most people still don’t really know what happens to their mortgage when they divorce.
To make things a little bit more transparent, below, we explain some of the main options people have with regards to mortgages and divorce.
What Happens to Joint Mortgage Holders After Divorce?
With joint mortgage holders, both people remain on the mortgage after divorce and stay equally responsible for continuing to meet the monthly payments until a financial settlement is reached and a new arrangement is put into place.
If you’re in the process of divorce, you should inform your lender as soon as possible to understand the options available to you for dealing with the mortgage payments.
Your lender might offer a repayment holiday or extend the mortgage term to assist with short-term payment challenges. However, you may need to consider refinancing or downsizing for a longer-term solution.
It’s important to keep in mind, even if one of you has moved out of the property, you both still need to keep repaying your mortgage. Failure to do so might result in repossession of the property, which would have a significantly detrimental impact on both parties’ credit scores.
Transferring Ownership of the Property
After the divorce has been settled, you may choose to keep the property within the family to ensure your children can grow up in the home (or maybe one of you wants to remain living at the property).
If you decide this is right for you, you should transfer ownership of the property into one person’s name.
You can transfer a property from joint to sole ownership through a transfer of equity, removing one party from the title deeds. If the remaining party meets the lender’s affordability criteria, the lender can remove the departing party from the mortgage.
If you’re looking replace your ex-partner on the mortgage, a transfer of equity can also be used to add a new person to the title deeds and mortgage. The addition of another person can make meeting the lender’s affordability criteria more likely.
It’s easier if both parties agree to a transfer of equity before talking to the lender, but if this isn’t the case, both parties will have to work with solicitors to establish ownership of the property.
Remortgaging
Remortgaging allows you to release equity in your home to buy out your ex-partner from your mortgage.
This means you can replace the old mortgage with a new one that is not in their name. You can remortgage in your name only or have someone new brought on to the new mortgage to replace your former spouse.
What’s right for you will be determined by your unique situation and whether you can meet the lender’s affordability criteria alone.
To be eligible for remortgaging, you’ll need to meet certain criteria such as income, creditworthiness, age and more (as you would expect with any mortgage).
Your new mortgage may have different terms compared to your old one, including changes in rates, mortgage duration and features. Additionally, releasing equity to buy out your ex-partner could raise the overall cost of your mortgage.
Selling the Property
It’s most common for people to sell their property after divorce and divide the proceeds before permanently severing any financial ties.
If both people want to sell after divorce, they can put the property on the market in the usual fashion; however, if, for any reason, there is a disagreement over selling, a court decision might be needed to decide on the sale.
After the property is sold, any profit is divided according to the agreement reached by both people, or (in some instances) a court order.
Mortgage repayment penalties and legal fees may apply while the property is being sold, so it’s important get professional financial and legal advice.
While it makes sense for one person to move out of the marital home during divorce proceedings to reduce tension. This doesn’t mean they surrender any rights to the ownership of the property.
Speak to an Expert
Understanding your mortgage during a divorce is important, but that doesn’t make it any less stressful. Our team of mortgage advisors are here to help.
If you’d like to speak to a CeMAP qualified advisor today, call us on 01489 346624 to get started.
