Coming soon to a bank near you: the divorce mortgage?
If so, this could be a welcome development for older homeowners who want to stay in their houses or condos after a marital breakup but don’t have the cash to do so.
According to a recent article in the British newspaper, The Telegraph, some lenders in Great Britain may introduce the “divorce mortgage” later this year, due to “a flood of older people being forced to sell their homes after they split in later life.”
A Securian Financial survey of 546 people who divorced after 10 years or more of marriage found that in more than half the divorces, one spouse kept the home.
Here’s how it would work, according to The Telegraph: The soon-to-be ex who wants to remain in the home would be able to borrow enough to buy out their former spouse with the lump sum from the lender. The bank would also lend the person staying put extra money that would go into a savings account and be used to pay the loan interest over a set period of time. At the end of the loan’s term, the borrower could sell the home and pay back the lender from the home equity or take on the full mortgage.
“It’s all about helping someone stay in their home for a set period,” Simon Collins, of the British mortgage adviser John Charcol, told The Telegraph.
The Rising Gray Divorce Rate
Such a financial product might be exceedingly helpful in the United States, too, given the rise in the “gray divorce” rate.
As Next Avenue blogger Kerry Hannon wrote in The Big Money Mistake Divorcing Women Make, the divorce rate among American adults 50 and older doubled from 1990 to 2014, according to the National Center for Family and Marriage Research at Bowling Green State University in Ohio. And, Hannon noted, a Securian Financial survey of 546 people who divorced after 10 years or more of marriage found that in more than half the divorces, one spouse kept the home.
But paying for a home at that age can be challenging, especially if you’re still shelling out tuition bills and your sole income isn’t enough to cover the monthly mortgage nut. You could find yourself selling another asset — even some of your retirement funds (No!!!!) — to do it.
Even if you’ll be receiving alimony, lenders don’t always count that as income until you’ve been getting it, on time, for six months. Worse, your homeowners insurance premiums could shoot up if your credit score is lower than when both you and your ex’s names were on the policy.
Financial experts Hannon interviewed recommended against divvying up the home in a split. Instead, they said, divorced couples should sell the home and split the proceeds — otherwise, the home could be an expensive proposition for the person staying there, with no guarantee that it will appreciate in value.
My advice: If you’re about to get divorced and co-own a home, meet with a financial adviser or a credit counselor to assess the money implications of staying put.