Question: My spouse and I are going through a divorce and we have a mortgage with great interest rate. Do we have any options that would allow one of us to be removed from the mortgage without refinancing into a higher rate?
Answer: Thanks to Paul Nagel of Main Street Home Loans for his insights in drafting this article. You can contact him at [email protected] or (703) 201-5147 for additional follow-up or any of your mortgage needs.
Going through a divorce is tough enough without having to deal with the headache of dealing with your mortgage. With over 70% of homeowners currently holding mortgages with interest rates much lower than today’s rates (source: New York Times), divorcing couples often face a difficult decision dealing with an existing mortgage.
Problem: To Refinance or Not
The common dilemma divorcing couples face these days is removing one partner from an existing mortgage without taking a huge financial hit brought on by refinancing (the most common way of removing somebody from a mortgage) into a much higher interest rate.
By not removing the departing spouse from the mortgage, it hampers the departing spouses’ ability to buy another home and exposes the departing spouse to risk of non-payment by the spouse who remains in the home.
(Potential) Solution: Specific Language in the Divorce Decree
The divorce decree can be a lifesaver here allowing the spouse staying in the home to keep the low interest rate and the one moving out isn’t financially tied to the house. Both parties need to agree and sign off that:
- Refinancing is not required
- The vacating spouse out isn’t responsible for the mortgage, taxes, insurance, or HOA fees
- Both names stay on the mortgage, but only one spouse is responsible for making the payments
Other Considerations
- Removal of Mortgage from Departing Spouses Credit: Often, the vacating spouse can contact the mortgage company to get the mortgage taken off their credit report. It’s not guaranteed, but many mortgage servicers will do this with a court-recognized divorce decree, protecting the departing spouse’s credit if payments aren’t made.
- Separate Bank Accounts: After the divorce, close all joint bank accounts. The mortgage should be paid from an account that’s only in the name of the spouse responsible for the payments.
- Legal Enforcement: The agreement must be signed by both parties and recognized by a court of law in the divorcing couple’s state
- Documentation: When applying for a new home loan post-divorce, lenders will want to see all pages of the divorce decree and separation agreements. Be ready to provide these documents.
- Consult a Tax Professional: Don’t forget to talk to a tax professional to understand any tax implications/benefits of keeping or selling the property during or after the divorce
If you’d like to discuss buying, selling, investing, or renting, don’t hesitate to reach out to me at [email protected].
If you’d like a question answered in my weekly column or to discuss buying, selling, renting, or investing, please send an email to [email protected]. To read any of my older posts, visit the blog section of my website at EliResidential.com. Call me directly at (703) 539-2529.
Video summaries of some articles can be found on YouTube on the Eli Residential channel.
Eli Tucker is a licensed Realtor in Virginia, Washington DC, and Maryland with RLAH Real Estate, 4040 N Fairfax Dr #10C Arlington VA 22203. (703) 390-9460.
