The mortgage you signed during your marriage remains your joint responsibility unless you make other explicit arrangements during your divorce. Since just 40% of homes in the United States don’t have a mortgage, most people must work out arrangements during the split.
A mortgage transfer allows one party to stay in the home and accept all financial responsibility. Two main methods exist to help with this. If a transfer isn’t an option, other choices are available.
Primary mortgage transfer options
If you want to stay in the home after the divorce, the following two options could help you do just that.
1. Refinance your mortgage
In a mortgage refinance, you open a new loan in your name, rendering the former one invalid. This option allows you to stay in your home as long as you can make all of the payments on time.
A mortgage refinance is the quickest and easiest way to complete a mortgage transfer in a divorce. If you have a healthy credit rating and can handle the new payments, this is a good choice.
2. Try a release of liability
Release-of-liability paperwork allows a couple to remove one person from the home mortgage. This is a good option if you can determine how to pay off the mortgage and your partner at the same time.
For example, you might choose to cash out your retirement savings account and use the money to pay off your mortgage and your partner's share of the home. With this move, you could own your home outright and have an equitable split.
A liability release is hard to accomplish without appropriate funding. If you don't have a new loan or another way to pay off the home, the bank could keep the mortgage in both names for now.
What else can you try?
If you're unable to complete the mortgage transfer process, you have other options. They are more complex, but they could be right for you.
Try our Home Equity Split Calculator if one of you wants to buy the other spouse out of the marital home.
Share the mortgage
Some people opt to share the mortgage after the divorce. One person lives in the home, and the other considers it an asset that could gain value with time. Since more than 80% of people have interest rates below today's levels, keeping the home could be a smart financial step.
Because both names remain on the mortgage, skipping payments would harm you both. The two of you must remain in touch about the home's status and value. Sometimes, people accept this agreement. If you share children and want them to stay in the home they grew up in, this could be a compelling reason to share it after the divorce.
Sell the home
When your options are exhausted and you see no other way forward, selling the home could be a smart step. After the sale, you and your partner split the proceeds equally.
If your home is worth more than the balance of the mortgage, this can be a wise step. You cut home-related ties with your partner permanently, and you could use the money you earned to buy a new home in time. It’s a straightforward way to sever your financial ties so you aren’t continually linked in that way.
Collaborate with your partner
Your home is likely your largest asset, and understanding what to do with it during a divorce isn’t easy. Talk openly and honestly about what you want during your divorce. You might be surprised to discover that your partner is willing to work with you on certain items.
If you can’t hold constructive conversations about your home – and many people can’t – consider mediation. A mediator could help you and your partner talk openly about what you want. And you could find a way forward that seems fair to you both.
Mediators are trained to handle difficult discussions, and their help could be critical as you work through your divorce. If you can keep your divorce out of the courtroom, it is easier on all parties.
Suggested: Successful Divorce Mediation Tips and Tricks
What Should You Do With Your Marital Home in Divorce? Explore Your Options.
References
Nearly 40% of Homes in the U.S. Are Free and Clear of a Mortgage. (July 2019). Forbes.Assumption Agreement With Release of Liability. State of Minnesota.
85% of Homeowners With Mortgages Have a Rate Far Below Today's Level, a Factor Prompting Many to Stay Put. (September 2022). Business Wire.
