Deciding what to do with the family home is one of the biggest property decisions that divorcing couples have to make. This decision has a lot to do with what’s affordable. These days, the option where one spouse keeps the home and buys out the other’s share is becoming unaffordable for many couples because of the significant rise in mortgage rates in recent years.
When a spouse takes over full ownership of a home, it’s always recommended that they refinance the mortgage so it’s solely in their name. This way, the spouse that moves out no longer has this significant debt on their credit record – even if their ex is the one making the payments. A refinanced mortgage helps give both a cleaner financial break.
The problem is that Minnesotans are looking at mortgage rates that are around 7%. That’s more than double what they may be paying for a mortgage they got several years ago when they were at 3% or even less (and the world was facing highly unique economic struggles). That difference amounts to a considerably larger monthly payment. For a newly divorced spouse living on one income (even if they have spousal support), that’s likely to be unaffordable.
Some unconventional solutions
This problem isn’t unique to Minnesota. It’s affecting divorcing couples all over the country. Many are finding some creative solutions. The spouse who isn’t keeping the house may continue to contribute to the mortgage and get some other asset in exchange or maybe help pay the mortgage instead of spousal support. Some couples are even remaining in the home together so that neither one of them has to deal with a new, more expensive mortgage.
These solutions are typically best if a spouse only plans to keep the house for the short term – for example, if their youngest child is going off to college within a few years. There are also bridge loans and short-term loans that may help in these situations.
There are other potential loan options as well that it’s best to discuss with a lender and/or real estate agent. With experienced legal guidance, you can also explore various trade-offs you can make with your spouse to stay on the mortgage until you sell the home and how to include the responsibilities you both have in that arrangement in your divorce agreements.
