One of the most common assets sought after during an Illinois divorce is the family home. If a decision is made that one former spouse will retain the home, the next step is to determine how to handle the mortgage. Possibilities include retaining the original joint mortgage, refinancing the mortgage and loan assumption.
The mortgage loan assumption process tends to resort in the most confusion for divorcing couples. By assuming a mortgage, the partner who’s keeping the home will take on the payment responsibilities without the need to refinance. Meanwhile, the other spouse is removed from the loan. If loan terms are favorable, assumption fees may end up being less than costs associated with refinancing. However, not all home loans have an assumable option.
Even with higher up-front costs, refinancing may produce better longer-term results in line with a soon-to-be ex’s goals. There’s also the misconception that assuming a loan involves little more than signing papers. In reality, lenders usually require proof that someone assuming a loan will be able to make payments without assistance from an ex-spouse. There’s also the time factor. Refinancing usually takes about a month while the process of assuming a mortgage may take up to six months. Interest rates may also increase during this period.
During the divorce process, a family law attorney may help a soon-to-be ex obtain the original promissory note to determine if mortgage assumption is possible. Even if it is, a lawyer might recommend seeking input from a financial adviser or accountant to determine if fighting for the marital home makes sense financially.