Refinancing a Mortgage After Separation

Owning a home is normal for couples especially those who are starting their own family. More so, majority of mortgages are under joint mortgages wherein the title of the house and the mortgage itself is written with both names of the couple. In simple terms, the home becomes a conjugal property, joined not only by the marriage, but by legal mortgage files as well. But the question is, what happens to the home when the marriage ends?

According to statistics, 40% of marriages in the United States and Canada end up in divorce. Given that, not only is the family affected, but the home as well. On the onset of a divorce, how do you split the home? Two simple options can be presented as a solution to this problem. The first one is to simply sell the home and just divide the money between the couple. The second option is to let the other party sell his or her part of the mortgage and the property.

Although these are simple choices to choose from, many personal issues and economic factors may affect the couple’s decision. These may include having to provide a home for the children, market considerations so as to avoid unaffordable losses on the property, and many others. While some prefer to just sell the house and divide the proceeds, the option of buying out the other party seems quite common. This is where mortgage refinancing takes place.

Mortgage refinancing in this case works by replacing a joint mortgage by a single income setup. This will primarily be done by the person who is buying the other person out. Basically, lenders will ask for specific qualifications and financial proof that that person has adequate financial capacity to apply for their own mortgage plan. On top of this, that party pays the other party with the amount they have decided upon in buying the other out of the joint mortgage. Sometimes, they may opt to get this from the home equity if it is enough.

Essentially, mortgage refinancing is the key to upholding the mortgage upon separation. It provides a familiar and easy way of transferring mortgage responsibilities from a shared arrangement to an individual one.

Although there are cases wherein the couple are not financially capable to transfer the mortgage to either one of them, this can be solved because there are options wherein both of them can still have mortgage under their names. All they need to agree upon is how payments can be made despite the inception of separation. However, mortgage lenders remind both parties to be careful in handling such arrangement because both of their mortgages will be affected if one of them fails their payment responsibility.

The important thing when it comes to mortgage refinancing is being informed of the options and consequences of each option. Since this are life-altering decisions, careful and sound judgment must be employed to avoid any negative repercussions in the long run.