by Christy Bieber | Updated July 19, 2021 - First published on Oct. 9, 2020
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Your home loan could continue to be your legal responsibility -- even after a divorce.
Many married couples have a joint mortgage on a shared family home. Unfortunately, that can make things very complicated if the marriage ends.
When a divorce occurs, regardless of what the divorce decree says, both spouses remain legally responsible for paying the creditor if both names are on the loan. That means even if you -- and the court -- agree that your ex should take over mortgage payments, the creditor could come after you to collect. Plus, if your ex misses a payment or doesn't pay the loan at all, your credit could be ruined and you could be named in any foreclosure action.
Because of the huge risks of remaining on a mortgage loan, you'll likely want to take action to protect yourself. You have two options for how you can do that.
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While your current lender will not take your ex off the home loan (since you were approved based on both of your credit scores and income), that doesn't mean you're stuck with a joint loan forever.
In some cases, it's possible for the spouse who will keep the house (and/or who will remain responsible for mortgage payments) to refinance the home into his or her own name. This can be the best solution: The new loan will be the sole responsibility of the person who has agreed to pay the debt.
There's one challenge to this method. Most people can't qualify for a mortgage on their own because they don't have a high enough income. However, with mortgage rates currently near record lows -- making monthly payments more affordable -- refinancing may be an option for more divorcing couples now than ever before.
If you're taking this route, you'll likely want to change your home's deed as well. This is to make sure the person making mortgage payments is the only one with a legal claim to the home. Remember, a mortgage and deed (which shows who the owner is) are not the same.
Let's imagine both you and your spouse took title to the house together. Now, you're keeping the house and assuming responsibility for paying the mortgage. You'll want to ask your ex to sign a quit-claim deed to give up his ownership claim.
If neither of you can refinance or can afford the payments independently, selling the house is often the best option. Home prices are fairly high today -- it's undoubtedly a seller's market. You should be able to get a fair price for your home, then split the proceeds as part of your divorce settlement.
Of course, the downside is that you'll each need to find a new place to live. That could be challenging when housing inventory is tight as it is right now. But unless you can refinance, this may be the only surefire way to protect both spouses from financial disaster. If one of you promises to pay a shared mortgage and doesn't follow through, you will both regret it.
There isn't always a good option for how to handle a joint mortgage when a marriage ends. But the one bright spot is that mortgage rates are near record lows right now. If you decide to go the refinancing route, it could be more affordable than ever for the spouse who keeps the house to actually be able to make the payments on his or her own.
Be sure you consider the long-term financial implications of becoming solely responsible for a mortgage, though. Make the choice that's best for you both now and in the future.
Chances are, interest rates won't stay put at multi-decade lows for much longer. That's why taking action today is crucial, whether you're wanting to refinance and cut your mortgage payment or you're ready to pull the trigger on a new home purchase.
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