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Who gets to keep the mortgage in your divorce?

In many divorces, one of the big questions is “Who gets to keep the house?” Recent developments have added a new wrinkle to this common question, and many divorcing couples are now asking, “Who gets to keep the mortgage rate?”

As part of its efforts to slow inflation, the Federal Reserve has raised its interest rates over the past few years, leading to higher rates for home mortgages. This has slowed down real estate markets nationwide. In response to that slowdown, many homeowners who were thinking of moving have decided to put their plans on hold.

For many of these homeowners, this just means waiting until demand increases. For homeowners going through a divorce, it can make a difficult situation a lot more complicated.

Selling or keeping the home

Generally, married homeowners have three choices in their divorce:

  1. They can sell the home and split the proceeds according to the terms of their divorce settlement.
  2. One party can keep the home and buy out the other’s ownership stake.
  3. They can keep the home, rent it out or even continue to live together after they are divorced.

The cooling real estate market can make the first option less attractive because the home may not be able to command the price it would have just a few years ago. And if the spouses wish to buy new homes for themselves, they’ll face much higher mortgage rates than they have been accustomed to.

It also complicates the second option because the spouse who moves out must find a new place to live. They may be currently enjoying a mortgage rate somewhere around 3%, but if they buy today, they could be facing a rate of 7% or more.

The third option is rarely anyone’s first choice. Few people going through a divorce wish to share a home with their exes, or to work together as landlords. Still, the market situation makes the third option more attractive for many divorcing couples.

Homeowners who are starting the divorce process should explore their options.

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