A California resident who has won the family home in a divorce settlement may be considering their options when it comes to handling the mortgage. Common options include both spouses continuing to pay on a joint mortgage, one spouse refinancing the mortgage in their name or one spouse assuming the loan. The first two options are pretty straightforward. However, when it comes to the third option, a lot of misconceptions need to cleared up prior to proceeding.
When a spouse assumes a loan, they are basically removing the other spouse from the loan and naming themselves as the only borrower. They're doing this without needing to refinance the existing loan. There are some potential benefits to doing this. For example, the joint loan may have favorable terms, such as a low interest rate. Assuming a loan allows an individual to maintain those favorable rates. In some instances, a spouse can assume a loan for less than $1,000 in fees.
Many are surprised to learn that not all loans have an assumable feature. This is especially true of loans that were issued after 2008. It's recommended that an individual look at the original promissory note before applying to assume their mortgage.
Another misconception is believing that assuming a loan is the best option. That's not always true. As long as interest rates stay relatively low, refinancing doesn't mean having a higher payment. In fact, if a person refinances their loan over the course of 30 years, they may have lower monthly payments, which means increased cash flow.
When making decisions about handling joint property, joint accounts or other financial circumstances associated with divorce, speaking with a family law attorney may be a wise step to take. Family law attorneys may have practical advice that they can offer to their clients. They may help clients understand what the laws are on joint property, determining the value of property and how to manage joint debt.