Quick Answer: If you separate or divorce while you still have a mortgage, the mortgage does not automatically disappear or transfer to one person. Both borrowers generally remain responsible for the mortgage until it is refinanced, transferred with lender approval, or paid out through the sale of the home.
Separation can make an already stressful situation even more complicated when a home and mortgage are involved. The best option will depend on your finances, ownership structure, and what both parties want to do with the property.
Can One Person Keep the Home?
Yes, but the person staying in the home usually needs to qualify for the mortgage on their own.
This often involves refinancing the mortgage and removing the other person from both the mortgage and property title. Another option is a spousal buyout – you use the equity in the home to buy out the other borrower, of which you may qualify to borrow up to 95 percent of the current market value. The lender will typically review income, credit, debts, and overall affordability before approving the change.
If the remaining borrower cannot qualify alone, other options may need to be considered.
What If You Sell the Home?
Selling the home is another common option.
The mortgage is paid out from the sale proceeds, along with any applicable penalties or fees. The remaining equity can then be divided according to the separation agreement or legal arrangement between both parties.
Can You Remove Someone From the Mortgage Without Refinancing?
Usually, not simply by request.
A lender initially agreed to the mortgage based on the financial strength of both borrowers. Removing one person changes the lender’s risk, so approval is required.
This is why refinancing is often part of the process when one person wants to keep the property.
What Happens If Both Names Stay on the Mortgage?
If both people remain on the mortgage, both can continue to be responsible for the payments even if only one person lives in the home. However, missed payments can affect the credit of both borrowers, which makes it important to have a clear agreement in place.
Can a Mortgage Broker Help During a Separation?
Yes. A mortgage broker can review your current mortgage and help you understand what may be possible based on your situation.
That could include:
- Refinancing into one person’s name
- Accessing equity to complete a Spousal Buyout
- Reviewing qualification options
- Exploring a new mortgage after selling the home
Talk to a Mortgage Professional Early
If you are separating or divorcing and have a mortgage, it is helpful to understand your financing options before making decisions about the property.
Chris Marriner, a Lethbridge mortgage broker, can help you determine what you may qualify for and how different options could affect your mortgage, while legal professionals can advise you on ownership, property division, and your separation agreement.
The sooner you understand the financial side, the easier it can be to make informed decisions about what happens next.
