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Refinancing or assuming a mortgage in a divorce

| Mar 27, 2019 | Family Law |

Divorcing spouses often wish to remain in the family home they have lived in for many years. This presents no challenges when an agreement can be reached and primary residences are owned free and clear, but matters become more complicated when a mortgage is involved. In these situations, Alabama spouses usually decide between assuming a joint mortgage and taking out a new loan. Departing spouses generally require joint mortgages to be assumed or paid off as they would otherwise remain financially responsible and could be pursued for payment if the loan fell into arrears.

People sometimes believe that assuming a mortgage is a relatively straightforward process that involves little more than making phone calls and signing a few documents, but that is usually not the case. Most lenders will demand full documentation of all income and assets, and applications may be denied when bankers are not convinced that a newly-single party has enough income to cover the monthly costs of maintaining the property.

Assuming a mortgage may not always be the most prudent path to take. Taking out a new loan allows payments to be stretched out over many years, which could more than offset a modest interest rate increase. Refinancing a loan generally takes far less time than organizing an assumption, and the cost of needed repairs or refurbishments may be incorporated into new loans. Experts advise people to consider their options carefully and consult with professionals when unsure as these decisions can cast long shadows.

When a divorcing spouse wishes to assume a joint mortgage and remain in the family home, experienced family law attorneys can review the original promissory note. Most loans taken out after the 2008 financial crisis are not assumable. When assuming the mortgage is not an option, attorneys could pursue negotiations more vigorously to ensure that their divorce clients have sufficient funds to cover potentially higher housing costs.