Separation and Divorce

What happens to a mortgage when a marriage or partnership is over?

Separation and divorce are more common than you think and we can help. 

There are often questions about how to get out of a joint mortgage, what to do if one party wants to keep the house, and wondering if there will be financial consequences that will impact your ability to get a mortgage in the future. It is important to find support during life’s major transitions and good financial advice during a divorce is about more than money. It’s about peace of mind.

Castle’s team of experienced mortgage advisors have seen a lot of unique circumstances surrounding the division of assets and know how to ensure fair treatment of assets leaves each party with the best possible outcome. 

Practically Speaking

Anyone can move out, but before anyone can move on there are a number of factors mortgage-holders must address. Those named in the financial agreement must come to an understanding that the relationship is over and the mortgage should be adjusted or dissolved. 

A Separation Agreement from a law office is often required to legally determine financial responsibilities. Payment obligations for any monthly liabilities, as well as any income from receiving support payments, needs to be fully established before a mortgage can be accurately evaluated and presented to a mortgage lender.

Also, if both parties are agreeable to selling the house and ending the mortgage, it is helpful for everyone to be aware of the possible pre-payment penalties. If one person wants to keep the house, and the other is agreeable to it, they must be able to prove they qualify to keep the existing mortgage.

You’ve Got Options

There are many viable options if you need to get out of a mortgage.

  1. Sell. The house is sold to pay out the mortgage (plus any penalties or fees) and any surplus is split according to an agreement between the two owners.
  2. Release of Covenant. This is where one owner keeps the property and the other releases it without requesting payment. The one owner now assumes the mortgage, after proving they are financially qualified to do so.
  3. Release and cash settlement. One owner would relinquish the property to the other, while requesting part of the home equity value. The sole owner is required to prove they can assume the mortgage and pay out the request value to the other party. A mortgage refinancing option, in this case, may free up enough funds to make the requested payment to the partner relinquishing the property.
  4. Keep the property for rent. A joint mortgage can be kept as is and turned into a rental property to accrue value. This is a viable option when the home has not been owned long enough to accumulate a significant value in home equity, and could not likely be sold to cover costs.

What Our Customers Have Appreciated Most

Our top tip would be, take a breather. Have a coffee and a conversation with us. It doesn’t take a long, invasive evaluation, and you don’t have to make any fast decisions you aren’t comfortable with – in fact, you shouldn’t. Take the time to find the support you need, including financial guidance for your mortgage.

We would love for you to find a mortgage specialist who gets it. With the team at Castle, we can match you with a mortgage advisor who will help you get it right.

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