Deciding what happens to your family home will probably be one of the biggest financial decisions you will face.
If you know what solutions are available to you and the choices you might want to make it can make the whole process much less traumatic.
So we’ve laid out your options below . . .
Several Choices Available
There are a variety of options available to both of you, but precisely what happens to your mortgage will largely depend on your plans for the house and your individual circumstances.
It’s very important to consider that during this process you will need to continue to pay the mortgage until you have reached a solution. When two people take out a joint mortgage they are agreeing to be equally liable for the debt for the duration of the loan and not just whilst they live in the property. Therefore any failure to pay the mortgage on time can be damaging to your credit histories.
Sell Up and Move
Selling the family home and both parties leaving is often the easiest and most straight forward way to avoid any issues. Selling the house and paying off the mortgage is a clean break and the least messy. Any equity left after the mortgage has been paid off can then be split equally between you both.
However, we appreciate that for both sentimental and practical reasons this isn’t always the route people want to take.
Buy the Other Out
If one partner wants to stay in the family home they will have to prove to the lender that they are fully capable of covering the mortgage payments on their own. This is vital as your lender is not legally obligated to remove the other party from the mortgage.
The partner who wishes to remain in the house will be assessed as if they were a new applicant and the lender will then decide whether the mortgage is affordable for them. If you can satisfy the lender that you can afford the mortgage then they may agree to you becoming the sole mortgage holder.
If the lender agrees then you will need to buy your ex-partner’s share in the property. A ‘transfer of equity’ will need to take place. In most cases your current mortgage deal will remain in place. You may however need to get a valuation which will undoubtedly come with an additional fee.
Instead you may wish to remortgage; especially if your mortgage is free of any repayment charges. The transfer of the property ownership can then take place at the same time and is likelier a quicker option.
Get a Guarantor
Should the above solutions not be viable options you can take out a guarantor mortgage. You’ll need to find someone – usually a parent or sibling – to guarantee you will be able to meet your mortgage payments. If you miss a payment your guarantor could be liable to pay the debt to your lender.
What if you are in Negative Equity?
This is a term used to describe your financial situation when the current value of your home is less than the amount you have outstanding on your mortgage. Negative equity can present an immediate problem for those going through a divorce.
Unless you have savings that can be used to repay the difference between the value of your home and the mortgage your options are likely to be restricted. If you are unable to sell the home to pay off the mortgage in full you’ll need to speak with your mortgage provider to discuss the best options moving forward.
Help and Advice from Limetree
Whatever you current situation may be, get in touch with Limetree to discuss the best possible solution for you and your family. Our specialists can help you through the process to ensure minimal stress to all of those involved.