The word mortgage is a French term that literally means death pledge. The name reflects the level of commitment involved in such agreements and also the many years that are generally required to pay a mortgage off in full. The average mortgage lasts for 30 years, although some people opt for 15-year mortgages instead.
Most married couples share a mortgage, which means that the household mortgage will be one of many assets that could substantially affect the course of a Kentucky divorce. Under equitable distribution rules, both spouses may have a partial claim to the equity in the home, which often means that major changes to the mortgage could be in the future for the family as well. How are mortgages typically handled during a Kentucky divorce?
1. One spouse will come off of the mortgage
Refinancing a mortgage is one of the basic requirements in most divorces. The spouse staying in the marital home will need to apply for a new mortgage in their name only. They will then withdraw some of the equity accrued in the home in many cases as a means of compensating their spouse for their contributions toward the purchase and maintenance of the home.
2. The principal balance will usually increase
Using some of the existing home equity to pay the spouse not staying in the marital home is often the simplest solution for dividing the home fairly. However, that means that the amount someone owes on the home will increase. They may end up owing substantially more on the mortgage after refinancing than they did when they decided to file for divorce.
3. The payments may increase
The direct connection between the increased principal balance on a mortgage and a higher monthly payment is obvious. There are other factors that may increase the monthly payment as well. One individual borrowing without a co-borrower may not qualify for the best possible terms for the mortgage, which may mean that their interest rate is higher, which will drive up the payments.
People need to prepare for the likelihood of higher mortgage payments, a higher principal balance and a longer repayment period if they refinance during a divorce. Understanding how one’s financial circumstances will shift during a moderate or high-asset divorce will make it easier for someone to plan for the future in informed ways.