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What happens to your mortgage in a divorce?

On Behalf of | Sep 8, 2021 | Divorce Financial Planning |

If your house has an outstanding mortgage you need to take extra care in a divorce. When you own a property outright, it becomes one more asset to divide. Yet, if there is still money to pay, the property is technically not yours, but the bank’s and they will get upset if you do not pay them on time.

If there is enough in the divorce settlement to keep the home and cancel the mortgage then it may make sense to do so. Paying in full could save you a considerable amount in interest making the value of your divorce deal effectively worth more.

Keeping the house usually means keeping the mortgage

However, if you are like most people, clearing the mortgage is not an option, so you need to think carefully about the future. You could agree to keep the joint mortgage, yet that puts your credit rating at risk. If your spouse does not pay on time, whether through forgetfulness, malice, or lack of funds, the credit system will penalize you as well as them.

Separating your finances is best when you separate your lives

However much you like the house, if you cannot pay for it alone, it may be better to cede it to your spouse or sell it … unless you can find another way to keep the house and continue to meet the mortgage.

Renting is one option. You could rent the house out and move to a smaller property.  The rental income would cover the smaller place and help toward the mortgage. Or you could stay living in the property and sublet part of it until you pay the mortgage off.

Having sound advice during your divorce can help you spot financial opportunities and get the divorce settlement you need to move on with life.