Mortgages after divorce – What you need to know
When couples separate and divorce one of the biggest questions they have to consider is “where am I going to live?” Often a married couple own a property in joint names. One of the parties may want to continue living in that house especially if there are young children. The question always arises as to what to do about the mortgage on that property and the parties must look at what options are available to them.
When a mortgage is in joint names, it is irrelevant from the mortgage company’s point of view that you have separated and are divorcing. Each spouse signed the joint mortgage contract and so in the eyes of the mortgage company they both remain as liable for paying the mortgage as if the couple were still together. Couples can choose to continue paying off the mortgage together whether you both live in the house or just one stays in the house or even if neither of you continue to live in that house.
Clients often ask is it possible to keep the same mortgage after divorce. The answer always lies with the mortgage lender, and it is them that are the ultimate decision makers. Even if the mortgage lender is not lending you any extra money, if one party is removed from the mortgage this reduces their security of their loan from their point of view. However, if one party can meet all the lending criteria the mortgage company will often agree to one spouse keeping the same mortgage after divorce. However, we have seen more frequently over the past 12 months mortgage companies requiring the spouse who wants to take on the family home having to reapply for a different mortgage product which can often be at a higher rate.
In an ideal world, one party might keep the mortgage or re-mortgage to get a better deal at the same time as having the house transferred into their sole name. This is known as a Transfer of Equity where one spouse agrees to come off the property title typically as part of an overall financial agreement or in return for a sum of money. From then on, the party who remains on the legal title would be the sole owner of the property. This would follow negotiations with the other spouse or their Solicitor as to whether firstly they would agree to come off the mortgage and if so, how much money would they want for their share of the property. Before starting these discussions, the spouse should always find out how much they can borrow and if they have enough to take over the mortgage on one income. Once agreement has been reached then the party must change their mortgage or arrange a new one. This takes time and there are often additional fees involved as transfer of equity requires a Solicitor to do the legal work.
Another important consideration is the issue of affordability. The previous joint mortgage was based upon two incomes and now may not pass the lender’s affordability test with just one income even if you are not asking for any more money and, sadly, even if you have been paying it on your own for some time. It is important therefore to explore with your mortgage provider and/or a mortgage broker the options available to you and undertake the affordability test.
Should you require any assistance with divorce and the distribution of matrimonial assets, then please contact one of our specialist family law solicitors.
Author: Noelle Heath, family law.
