Mortgage Assumption In An Illinois Divorce

For forty years it was simple to get your spouse off your mortgage so you could keep the marital home after an Illinois divorce. The spouse that kept the marital house would refinance the mortgage. Some of the debt would have been paid off and mortgage rates were typically lower than they were when the mortgage was set or last refinanced. So, even if you had to pay your spouse their marital share of the equity in the home, the ongoing monthly payments post-refinance were usually lower. Then came 2022! Mortgage rates are now climbing. A spouse cannot simply refinance the mortgage to a lower rate and pay out the equity in the home. The new monthly payment is simply too high. For example, a $ 400,000 mortgage at 3.25% is $1740 a month. A $ 400,000 mortgage at 6.25% is $2,462.87 a month. A divorce spouse on a single income may simply not be able to pay the $720 a month to refinance the mortgage. This new refinanced mortgage presumes there’s no additional equity in the house which your spouse needs to be compensated for…which is unlikely for any house bought before 2020. Most ex-spouses who are willing to let their ex-spouse keep the marital home want their share of the house’s equity. This makes a higher-interest mortgage even more expensive. In lieu of refinancing the mortgage for the marital home in an Illinois divorce, one spouse can assume the mortgage. Assuming A Mortgage During Or After An Illinois Divorce To assume a mortgage is to “acqui[re ] real property coupled with the assumption of personal liability for debt secured by that property.” Black’s Law Dictionary (11th ed. 2019) When one spouse assumes the mortgage they get the whole house…and the whole mortgage. The other spouse’s name is removed from the deed to the house via a quitclaim deed and removed from the mortgage via a new contract with the lender. Lenders are not thrilled about mortgage assumptions. A mortgage assumption after a divorce is two working adults liable for one mortgage going to one working adult liable for one mortgage. Why would a lender want to allow that? Some government subsidized mortgages through the FHA, VA or FDA require that loans be assumable. Private lenders would prefer you refinance the mortgage at the new higher rates or pay off the loan if both parties are no longer willing to […]

from Russell D. Knight | Family Lawyer Chicago https://rdklegal.com/mortgage-assumption-in-an-illinois-divorce/