Using a Second Mortgage To Buy Out An Ex

A home is most likely the biggest purchase you will ever make, which is why this is the main topic of debate for couples going through a divorce. We understand that you have spent a lot of time and money paying for your home and now you have to decide what you are going to do with it. So, to help you get started, our team at Lotus Loans & Mortgages have explained how a second mortgage can help you buy out an ex.

When settling a divorce agreement there are three main options you can make regarding your home. The first is to continue to co-own your home and split the mortgage payments evenly. Although this is most likely the easiest option, it is not the most realistic. The second option is to just sell the house and split the profit 50/50. This could be difficult though if homes are selling way below value, or if the kids are sentimentally attached to their home. Which leaves the third option, one spouse buys out the second spouse.

Buyout Option

A buyout is where one spouse purchases the other half of the house from their ex to gain full control of the property. If the spouse does not have enough money outright, they can obtain a second mortgage in order to receive the funds to buy out the other spouse. This makes it where the home is solely in one person’s name. This is a great option if you wish to keep the kids in one location and not have to worry about moving costs.

Some disadvantages of the buyout option are that the spouse selling their half of the house will not reap any benefits when the home appreciates in value. Also, the spouse buying the home could realise they do not have the appropriate amount of funds to afford a first and second mortgage payment and thus could be overwhelmed with debt. To prevent these mistakes from occurring ahead of time, contact your local Brampton mortgage broker to go over all the options available for your financial situation.

Issues With Having an Ex-Spouse on Your Mortgage

Trying to figure out what to do with your mortgage when settling your divorce can be a very long and expensive process. There are a few different options you and your ex-spouse could take, such as selling your home or keeping both names on the mortgage. However, you may think that keeping both names on the mortgage could cause less financial problems, but what you may not know is that there are many issues associated with having an ex-spouse on your mortgage. These include:

1. Payment Responsibility

If you decide to stay on your ex-spouse’s mortgage, you will still be responsible for payments. Even if your ex says they will be the one paying for the mortgage, if they miss a payment, you will be held responsible. Your Brampton mortgage broker will not care if your name is not on the deed. All they care about is that the mortgage gets paid for, therefore, they will still hold you responsible to make the payment if the ex-spouse failed to. You will also be responsible for payments if something were to happen to your ex-spouse, such as a major disability or death.

2. Can’t Get A New Mortgage

Another issue with having an ex-spouse on your mortgage is that you will not be able to get an additional mortgage unless you have a large enough income to support one. Having your name on a previous mortgage can really affect your finances and most brokers will not feel comfortable lending you money if your name is tied to a loan elsewhere. Also, if you wish to rent a home after the divorce, you may have a problem with your landlord because they will want to see you are financially capable of paying your rent on time. Your landlord might decline your application if they know you have a mortgage with fear you might not be able to pay your rent on time.

3. Credit Score Is Still Affected

If you stay on your ex-spouses mortgage, your credit score is still affected. Even if you sign the rights over to their name through a quitclaim deed, you not only are responsible for making payments if your ex-spouse defaults on their mortgage, but your credit score will be negatively affected.

Therefore, if you are settling a divorce, the best way to go about dealing with a mortgage is to sell the house and split the profit evenly. However, if one spouse wants to keep the home, then they can refinance their loan by obtaining a Brampton second mortgage, and have the deed signed over in their name.