What happens to a mortgage in a divorce?

Many of the married couples in Australia that divorce do so after buying a family home. If you hold a joint mortgage, there are several available options after your divorce. These include transferring your share to your ex-spouse, selling the home to a third-party and splitting the proceeds, or acquiring your ex-spouse’s share and assuming the entire responsibility for repaying the mortgage.

Removing your name from the mortgage after divorce

If you agree for your ex-spouse to take over the home loan, you need to remove your name from the mortgage. However, it isn’t as easy as calling the lender and informing them about your divorce. Legally, the loan has to be refinanced in the name of the person who continues taking the responsibility for the repayments. After the loan is refinanced and your name is no longer on the mortgage, you are no longer required to make repayments.

Pros of refinancing

• If the interest rates are lower than when you originally took the loan, refinancing can reduce the interest costs, to potentially save the mortgagee more money over the long term.
• The option to refinance the mortgage for a shorter loan term may be available - this can mean owning the property sooner, though the repayments may be higher.

Cons of refinancing

• You need to complete an entire mortgage application process and submit the necessary documents, which makes refinancing a lengthy procedure.
• There may be fees, charges and other costs for you to cover when refinancing.

Selling the home

If neither you nor your ex-spouse can afford the mortgage payments as a sole borrower, you can sell the house to a third party. Finding a buyer willing to pay the right price may take some time, especially if your home is in a location where few buyers are looking.

If the mortgage is in arrears, you may need to sell your home in short order. There may be a risk that the sale proceeds may not be enough to cover the outstanding mortgage balance, leaving you to cover the difference between the two.

Can you transfer your mortgage to your ex-spouse?

Yes, this is possible if your ex-spouse is willing to refinance the mortgage and pay to take your name off the mortgage. Your name will also need to be removed from the property title deed.

This option makes you eligible for capital gains tax rollover relief, which means you don’t have to pay the tax on your share of the property sold to your ex-spouse.

Can you buy your partner’s share of the mortgage?

You can also remove your spouse from the mortgage after divorce and buy out their share. However, this may be possible only if you qualify for a home loan in a single name.

If you’re eligible, you may even be able to refinance and extend the loan, potentially even using the extra money to help pay for the divorce settlement (though this may require you to buy Lenders Mortgage Insurance, depending on the equity avaiable in your property). There may be no stamp duty cost as it is generally not applicable for transfer of equity.

How to remove an ex-partner from a mortgage

In most cases, this requires refinancing the loan. You need to discuss this with your lender and show them that you’re able to afford the higher monthly repayments, even when you’re the sole borrower.

When you refinance the loan, the original loan is removed from your credit report, and the new one is added. If your ex-partner is taking over the loan, your credit report is updated by removing the mortgage from the report.

Seeking advice from experts when finding out how to remove someone’s name from a property title is recommended. They will help you agree on the terms and conditions, price and make a formal commitment to proceed without any complications.

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