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Mortgages And Role After Or During Divorce

A mortgage is a loan, provided by a mortgage lender or a bank, that enables an individual to purchase a home or property. While it’s possible to take out loans to cover the entire cost of a home, it’s more common to secure a loan for about 80% of the home’s value.

A borrower must apply for a mortgage through their preferred lender and ensure that they meet several requirements, including minimum credit scores and down payments. Mortgage applications go through a rigorous underwriting process before they reach the closing phase. Mortgage types vary based on the needs of the borrower, such as conventional and fixed-rate loans.

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Types of Mortgages

The two most common types of mortgages are fixed-rate and adjustable-rate (also known as variable rate) mortgages.

Fixed-Rate Mortgages

One of the most popular types of mortgages is the fixed-rate mortgage. Fixed-rate refers to the fact that the interest rate remains the same over the term of the mortgage. This is in contrast to other types of mortgages like variable-rate mortgages, in which the interest rate may change. If you have a set budget and want to have predictable payments from month to month, then a fixed-rate mortgage might work well for you.

Adjustable-Rate Mortgages

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With an adjustable-rate mortgage, your payments can increase or decrease with interest-rate changes, based on the terms of your individual loan and a benchmark interest rate index chosen by your lender. In some cases, choosing an ARM over a fixed-rate mortgage could be a solid financial decision, potentially saving you thousands of dollars.

Mortgages after divorce 

If you divorce and both your names are on the mortgage of your home, you and your ex-spouse must both continue making mortgage repayments until you reach a financial settlement. Missing payments will harm your credit score (making it harder for you to get mortgages in the future) and at worst could lead to repossession of your home. Forcing your ex-spouse to pay your share is also a big risk, as this could be used against you in any future financial dispute.

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A divorce agreement might require the sale of the home and the splitting of profits if the couple doesn’t meet a deadline to refinance the mortgage into one spouse’s name. If neither spouse can afford the mortgage on their own, they may have no choice but to sell. It may be in everyone’s best interest to get rid of the place, pay off the mortgage, collect their share of the profits and start fresh.

Besides the mortgage balance, couples should consider the costs they will incur if they sell or refinance the home. These might include Realtor commissions, the costs of sprucing up the property to make it more attractive to buyers, real property transfer taxes, and capital gains taxes.

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