From mourning the end of a relationship to ironing out the living and parenting arrangements, divorce is difficult enough as it is. However, if you have a joint mortgage on a property together, it can add a whole new level of complexity.
Regardless of whether you both remain in the home, the mortgage still needs to be paid off and it’s not always as simple as splitting it . The good news is, by familiarising with the guidelines around home loans and divorce, you can make sure you’re prepared in the unfortunate event your marriage ends.
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What happens to the mortgage when you divorce?
You may be wondering “can you hold a shared home loan account after divorce?” After all, surely paying the loan repayments back equally would be the simplest option. Yes, it is indeed possible to take out a joint mortgage and both remain liable for the debt until it is paid off. However, there are various reasons that this may not always be feasible. Perhaps one partner has a lower income, will have increased rental or childcare costs or simply doesn’t feel they should have to pay for a home they no longer live in. In this case, there are a few other divorce and mortgage options:
- Buying out the property share owned by your ex-partner
- Selling your property share to your ex-partner
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On the flipside, you can also buy your partner out of the mortgage and remove them from the home loan. However, in order to do so, you would need to qualify for the mortgage on your own. If you’re eligible, you will be able to refinance and extend your mortgage to 95% of the property value.
You may also be able to increase your home loan to pay out a divorce settlement. In this situation, you may be required to pay Lenders Mortgage Insurance (LMI) if you loan more than 80% of the property value. However, the good news is, you generally won’t be liable for stamp duty, as it’s usually not payable on a transfer of equity.
Can I refinance my house during a divorce?
Yes, it is possible to refinance your home during a divorce. In fact, many couples will decide to do this as it allows one spouse to be ‘bought out’ of the home loan while the other keeps the house.
If one half of the couple does intend to buy the other out, the person keeping the house must ensure they have the means to service the home loan on their own. They must also have enough savings or equity to be able to buy the other half of the couple out for their share.
How is equity divided in a home after a divorce?
The way the equity of a house is divided after a divorce will depend on legal proceedings. Depending on the factors involved, each partner will be entitled to a certain share of the property. This could depend on factors such as:
How to qualify for a home loan after divorce
In order to qualify for the mortgage on your own when buying your partner out, you must meet certain criteria, including: