The Importance of Being Removed From a Mortgage After Divorce
When couples divorce in today’s financial climate, the largest debt between them is typically their home’s mortgage. It may be emotionally difficult for spouses dissolving their marriages to determine whether to allow one person to keep the house or to sell it. However, as soon as the decision not to sell is made, it is an important and financially responsible choice to refinance the mortgage and remove the name of the spouse who will not be living in the home. Family law attorneys can guide couples dissolving their marriages on these issues.
Burden of Mortgages
When both the economy and real estate market were thriving, couples going through a divorce fought over who would get the house and its equity. In today’s world of harsh financial realities, however, the opposite happens and spouses instead work to get out from under a house or the mortgage, when possible. Many homeowners today are underwater, which means they owe more on their mortgages than their homes are worth, so when marital dissolution occurs, spouses use this as an opportunity to try to remove the burden of a mortgage.
Benefits of Refinancing
Once a divorcing spouse chooses to own and live in a house following the dissolution, he or she should refinance the mortgage to remove the former spouse’s name from the title. This action is not only cathartic after a divorce, but also financially responsible. The benefits of refinancing include gaining financial independence from a former spouse, removal of the mortgage from the non-owner’s credit, the non-owner is no longer responsible for the loan payments if the owning spouse defaults and he or she is free to purchase another home.
Refinancing has its risks, too. Lenders are hesitant to remove a name from a mortgage, because that is one less party to collect from if the loan defaults. The cost of refinancing can also become expensive, amounting to thousands of dollars, so divorcing couples need to decide who will pay for this service. If the spouse who lives in the house is not on the mortgage, this creates lender communication issues. Additionally, low income, poor credit scores and a lack of home equity may prevent the spouse willing to refinance from doing so.
Exploring the Alternatives
If refinancing becomes difficult, the spouse who wants to keep the home may need to find a co-signer, look for less-stringent lenders or loan offerings or try to qualify for the Home Affordable Refinance Program (HARP) to refinance a house with no equity. While initially it may be emotionally difficult to face the prospect of selling a marital home, this may turn out to be the better financial option for a divorcing couple if they can put aside their feelings and focus on the long-term financial repercussions of their present-day actions.
If you are a spouse thinking about filing for divorce, but are worried about what to do with your home, connect with a family law lawyer in your area to discuss your legal rights and options. You deserve to find the best way to resolve the house dilemma to preserve both your emotional and financial happiness as you start on your new journey.