Understanding mortgage responsibility and loan assumption in a divorce – it’s crucial!”
Assuming legal responsibility allows the spouse retaining the home to take on legal responsibility for paying the mortgage loan. When the “out-spouse” qualifies for a new mortgage loan the existing mortgage may be excluded from that spouse’s debts. However, any spouse obligated on the current loan is still responsible for the payment in eyes of the creditor so any delinquent payments or defaults will be reported to the credit bureaus.
A loan assumption allows one spouse to take over the mortgage and it involves official paperwork with a thorough financial check and approval from the lender. This is different than a refinance as it keeps the existing loan terms intact. A loan assumption ensures one party becomes the sole responsible borrower and releases the other borrower from liability. It’s important to note that not all loans are assumable at the existing terms and no cash out may be taken from the home equity when completing a loan assumption.
If the current loan is not assumable or cash out is needed from the equity then a refinance of the existing mortgage is required.
So, whether it’s assuming legal responsibility, a loan assumption or refinance, understanding the differences is key to navigating the complexities of divorce and mortgages.