Mortgage After Divorce
Having a divorce is always painful for both partners, but it can be even more difficult if you have children to consider. The first thing that comes to mind when thinking about the financial impact of a divorce is how much money will be needed to pay off your mortgage or other debts. If you’re planning on selling your home, this may also be an important consideration. In this article, we will guide you about divorce and mortgages and how they can impact your financial life. We will discuss how to calculate buying out a spouse’s house in the UK and the impact on the mortgage after divorce. Divorce rates in the UK have been climbing, said a report in the Telegraph newspaper on the 17th of April 2020 Indeed, a story in the Evening Standard on the 6th of January 2020 revealed the staggering statistic that, in that week, the volume of online searches for “I want a divorce” was 230% higher than in the first week of January just the year before.
In the trail of many of those divorces are likely to come difficulties with any mortgage arranged during happier times. So, let’s take a closer look at some of your mortgage buyout options following a divorce.
Perhaps the most straightforward solution to the problem of dividing equity in a mortgaged home is simply to put it on the open market and sell it.
Provided there is no negative equity, the outstanding mortgage can be paid off using the proceeds of the sale, and the remaining equity may be treated as a marital asset in the normal way and be divided accordingly. If that division cannot be reached through an agreement between the two parties, the courts may need to be called upon to decide.
Each party might then hope to use their share from the former marital home as help to buy an alternative property – as the deposit on a new home, for example, for which each of you will be looking to arrange a new mortgage.
Continue as you were
If you are still on good terms with your ex-spouse or partner, you might want to continue paying off the existing mortgage. There may be good reasons for doing so:
- if the mortgage is nearing the end of its term, you have the chance to completely clear the debt on the home and split 100% of the equity;
- there is no immediate change in ownership, of course, and you or your spouse might continue to live there until any children have reached the age of 18, suggests the Money Advice Service by way of example;
- if the mortgage is a fixed-rate deal still with several years to run, you might be paying less for your mortgage than if you each had to arrange separate, new mortgages; but
- you need to make sure that both you and your ex-spouse can continue to contribute to the mortgage repayments and find the other living expenses necessary after your divorce or separation.
You or your ex-spouse or partner may decide to buy out from the other the financial interest in the home.
If one or the other of you wants to keep the property in this way, then it falls to the remaining occupier to persuade the mortgage lender to transfer the loan into that name only. It is important to keep in mind that the lender has no obligation to do so and may continue to hold both parties responsible for any joint mortgage. In other words, your lender is under no obligation either to release either party from a joint mortgage or to transfer the existing mortgage into a sole name only.
For the lender to consider transferring the mortgage into your name only, of course, they will need to be convinced of the affordability of the outstanding loan and your ability to repay.
With any such transfer approved, you may then buy your ex-spouse’s share in the property – for which you might need an up-to-date market valuation to calculate the equity held in it.
If you need additional funds to buy out your partner’s share, you might alternatively consider remortgaging the home.
To a large extent, the options described so far rely upon a degree of agreement between the parties involved. If this is absent, then the courts may be asked to intervene.
Among the orders that the courts have at their disposal are:
- Mesher orders – also known as orders for deferred sale – involve the court deferring the sale of a marital home until a particular date or event, which might be set at the date on which the youngest child turns 18, for example; or
- Martin orders are similar to Mesher orders in so far as the sale of the marital home is deferred, but, in this case, delayed so that one party – typically the one with insufficient financial means to re-house themselves – may continue to live in the property until they die or re-marry.
In either of these cases, of course, the transfer of an existing joint mortgage may be required, a new mortgage arranged, or a remortgage negotiated.
How can I buy out my partner on a mortgage?
The answer to this question depends on whether you are buying out your partner’s interest in the property (which we call ‘the buyout option’) or whether you want to buy out your partner’ own interest in the property (we call this ‘the buyout order’).
A buyout order would require the court to direct the mortgagee to sell the property to you and pay over the proceeds to your partner. A buyout option would allow you to take title to the property yourself and pay your partner the difference between what you paid for her share and the amount she owes you.
A buyout order is more likely to succeed where there is a substantial disparity in the value of the two properties.
What happens if you have a joint mortgage and split up?
If you have a joint mortgage, you should not expect to receive any money back as a result of splitting up. The reason is that the lender holds both of you jointly liable for the debt.
However, if you wish to buy out your partner, you could apply for a mesher order. This means that the mortgagee is ordered to divide the debt equally between you. You could also ask the court to make a buyout order. This would mean that the mortgagee sells the property to you and pays over the sale price to your partner.
It is worth noting that if you were to buy out your partner without first applying for a court order, you could face financial penalties.
This is because the law says that you must give notice to your partner before selling the house. Failure to do so could lead to a fine of £5,000. It is always better to contact for legal advice before split up and you have a joint mortgage.
Can I get a mortgage after separation?
Yes, but you will need to prove that you have sufficient income to support yourself and your children. In addition, you will need to show that you have enough savings to meet the costs of moving and making monthly mortgage payments.
You will also need to provide evidence that you have been working full-time since the split. It is always better to take a piece of legal advice from a market broker like ourselves.
How do I settle my mortgage after divorce?
There are three main ways of settling a mortgage post-divorce. These include:
- Remortgaging – this involves transferring the original loan onto another person with a different rate of interest.
- Settling by mutual consent – means that the two parties agree to change the terms of the mortgage. For example, they might agree to reduce the term of the mortgage or to increase the interest rate.
- Settling through the courts – this means that one party applies to the court for an order requiring the other party to pay them money.
In all cases, it is important to ensure that you act quickly because once the mortgage has been sold, it cannot be returned to the original owner.
In some circumstances, it may be possible to transfer the ownership of the property to the new owner. If this is not possible, then it is usually possible to settle the mortgage on a voluntary basis.
Is it possible to get a mortgage after separation or divorce?
Yes, but it can be very difficult to obtain a mortgage after separation or even divorce. To qualify for a mortgage, you will need to demonstrate that you have sufficient income and savings to cover the cost of living while paying off the mortgage.
How is a house buyout calculated in a divorce?
When you’ve decided exactly how your assets will be split up, you can start calculating the percentage of your house’s value to which each asset relates.
You need to figure out how much your house is worth. Then you can calculate how much equity you’ve got, which is the value of your house minus any debts secured against your house, such as a mortgage, for example.
Can I remortgage to buy my partner out?
Yes, you can remortgage to buy out your partner from a mortgage but you may need to contact an independent mortgage broker before starting your application. A remortgage to buy out your partner is difficult to arrange without a good reason. You should only consider doing this if you have no other option.
How to Calculate a House Buyout In a Divorce?
Getting to deal with a shared home after your divorce can be tricky, especially if you both are not on friendly terms. One option to try is to buy out the left mortgage amount from your spouse which is also known as a house buyout. This is a way to make sure that you keep the house and avoid having to sell it at a loss.
If you want to buy out your ex-spouse’s share of the house, you must first find out what their share is. The easiest way to do this is to contact an expert broker. Once you know what their share is, you can work out how much you would need to borrow to buy out their share.
The next step is to decide whether you want to borrow enough money to buy out your ex’s share of your house or whether you prefer to sell the house and divide the proceeds between you and your ex.
If you choose to sell the house, you will need to decide where you want to live and how long you plan to stay there. It is best to think about these things now so that you don’t end up regretting them later.
It is important to remember that buying out your ex-partner’s share of the house does not mean that you own the house outright. Your ex still owns half of the house and you still owe him/her half of the mortgage.
How does a divorce affect a joint mortgage?
Divorce affects a joint mortgage in two ways:
1) The mortgage company will require proof of financial stability on behalf of both parties.
2) The mortgage company will likely increase the interest rate on the loan.
In some cases, if the mortgage repayments are not done after the divorce by one partner could also affect the credit scores and financial circumstances. It is always to better consult a mortgage adviser in case of joint mortgages after divorce.
Can I buy my wife out before divorce?
Buying out your wife before divorce is a very common thing to do. If you are planning to get divorced, then you might want to buy out her share of the property. But, you should take into consideration that she has been living in the house for years and she might not agree to sell her share of the house. So, you should talk to her first.
When you buy out your wife’s share of the house, it means that you will become the sole owner of the house. And, you will have to pay off all the outstanding debt that was secured against the house.
You can buy out your wife‘s share of the house either through a lump sum payment or monthly payments. However, you should note that paying off the entire balance of the house in one go is not possible. You will have to pay off the house.