fair way to deal with mortgage

[Sesom]

What is the name of your state (only U.S. law)? Washington

My husband and I own a house with a very low interest rate (4.875% 30 yr fixed). He would like to keep the house, so he will buy me out by giving me half the equity. We have decided that instead of refinancing to take my name off the mortgage, which would result in losing that great rate and thus costing him more money, we will just apply for a new mortgage in both our names so that I can get into a house of my own. We have figured out a way to make our monthly payments somewhat equal to make up for the benefit he gets by getting the low interest rate (he's going to pay more on a property that we will continue to co-own), but how do we account for the fact that he will only have 22 years left on his mortgage and I will be starting over owing a full 30 years worth of payments? Any suggestions?

 

[Farfalla]

What is the name of your state (only U.S. law)? Washington
My husband and I own a house with a very low interest rate (4.875% 30 yr fixed). He would like to keep the house, so he will buy me out by giving me half the equity. We have decided that instead of refinancing to take my name off the mortgage, which would result in losing that great rate and thus costing him more money, we will just apply for a new mortgage in both our names so that I can get into a house of my own. We have figured out a way to make our monthly payments somewhat equal to make up for the benefit he gets by getting the low interest rate (he's going to pay more on a property that we will continue to co-own), ......

Let's see...
you will both keep your names on the deed and mortgage for house #1 (the one you own now)
Your husband will pay you 50% of the current equity and get a mortgage with you on another home. You will both have your names on the mortgage and deed of home #2?

On home #1. Even if he pays you out your part of the equity do not removed you name from the deed as long as your name is still on the mortgage. It's really not wise to own no interest in a home that you are financially responsible for. If something happened and he defaulted on the mortgage, you would be stuck with having to pay off the mortgage on a house you do not own.

....but how do we account for the fact that he will only have 22 years left on his mortgage and I will be starting over owing a full 30 years worth of payments? Any suggestions?

Get a 22 year mortgage on your new home.
or
Get a 30 year mortgage on your new home but do one of the payment plans that pay it off very early... like half the mortgage very two weeks...
or
Refinance house #2 in 22 years when house #1 has been paid off.

You might also want to look at including in your agreement some things that could happen as the two of you move on… such as what happens if he gets married again and his wife does not like that he’s paying part of your house? If he makes the house payments out of community funds, his wife can make a claim on your home. If he dies, does his wife get to own half of your house?

Just wondering… if the two of you get along well enough to plan and carry out this plan… why are you getting a divorce?

 

[LdiJ]

What is the name of your state (only U.S. law)? Washington

My husband and I own a house with a very low interest rate (4.875% 30 yr fixed). He would like to keep the house, so he will buy me out by giving me half the equity. We have decided that instead of refinancing to take my name off the mortgage, which would result in losing that great rate and thus costing him more money, we will just apply for a new mortgage in both our names so that I can get into a house of my own. We have figured out a way to make our monthly payments somewhat equal to make up for the benefit he gets by getting the low interest rate (he's going to pay more on a property that we will continue to co-own), but how do we account for the fact that he will only have 22 years left on his mortgage and I will be starting over owing a full 30 years worth of payments? Any suggestions?

This is a very potentially dangerous proposition for both of you. Yes, I understand that you have a very low interest rate on the existing home, and he wants to keep it, but you will each be at the mercy of the other as far as your credit ratings are concerned, for at least the next 22 years, and you potentially even longer.

That's fine to do when you are married, but its a potential disaster being divorced. Neither of you can predict the future and can ensure that a financial disaster won't happen to one of you, putting the other's home at risk. If something happened to either one of you, the other would get your house...instead of a new spouse, or other beneficiary you would designate.

There are other pitfalls as well.

Honestly, what really needs to happen is that he refinances, buys you out, and you buy your own home in just your own name. Sure, that's not ideal since you have that great interest rate, but nothing about divorce is ideal.

 

[mistoffolees]

What is the name of your state (only U.S. law)? Washington

My husband and I own a house with a very low interest rate (4.875% 30 yr fixed). He would like to keep the house, so he will buy me out by giving me half the equity. We have decided that instead of refinancing to take my name off the mortgage, which would result in losing that great rate and thus costing him more money, we will just apply for a new mortgage in both our names so that I can get into a house of my own. We have figured out a way to make our monthly payments somewhat equal to make up for the benefit he gets by getting the low interest rate (he's going to pay more on a property that we will continue to co-own), but how do we account for the fact that he will only have 22 years left on his mortgage and I will be starting over owing a full 30 years worth of payments? Any suggestions?

Sounds like you're asking for trouble. Just spend some time on this board and you'll see how many 'amicable' solutions turn nasty overnight - particularly when someone else enters the picture.

Personally, I wouldn't do it. Rather, I would have him contact his bank to see if the equity and his income are high enough to remove your name from the existing mortgage and then you each go your own way. If that's not possible, he should refinance - even though he'll pay a higher interest rate. The plus side is that he can include the amount of equity he's paying you in the refinancing so it is spread out rather than paid in a lump sum if he prefers. There is, of course, a cost to doing that.

 

[Sesom]

thank you

Thank you all for the advice. Just to clarify a few things, we are not yet divorcing, but dividing assets through a legal separation, thought I'm sure that doesn't change the advice. We both have hope that the marriage will eventually work out, but are going to separate so we can both move on mentally and figure out what we both want. Yes, it is very amicable but I do realize it may not always stay that way. And I do see that we are getting into dangerous territory by both being financially responsible for each other's mortgages, so it does require another look. Although after 13 years of being my best friend and partner, I feel I know him pretty well and know he is very financially responsible. And in the case of an accident or something, I think I'd want to do whatever I could to help him out regardless. But yeah, I see how if someone else enters the picture this could all change.
Believe it or not, doing this was actual advice from a mediator/attorney who we saw. She told us that the other wouldn't be responsible legally because it would go to court and the Quit Claim Deed would absolve the other spouse (or something like that; honestly I don't remember the details because we haven't yet drawn up the paperwork or made any final decisions, but we see her again next week so I'll get details).
If we do decide to go through with it, I like the suggestion of paying it off early to equal 22 years.
Again, thank you all and feel free to shell out more advice if you have it. I'm listening

 

[mistoffolees]

Believe it or not, doing this was actual advice from a mediator/attorney who we saw. She told us that the other wouldn't be responsible legally because it would go to court and the Quit Claim Deed would absolve the other spouse (or something like that; honestly I don't remember the details because we haven't yet drawn up the paperwork or made any final decisions, but we see her again next week so I'll get details).

If that's what the attorney or mediator really said (and you didn't misunderstand), I'd think seriously about getting another attorney.

Once you sign a mortgage document, you are responsible for the debt. Period. If your divorce decree says something else, it can not override the mortgage document. The bank can still collect from you even if you've signed a quit claim deed and even if the divorce decree says it's the other person's responsibility.

If the divorce decree says it is your stbx's responsibility, you can pay it and then sue to collect, but if he's defaulted on the mortgage, there may be some reason you can't collect (disability, etc) and you're going to get stuck with it.

 

[VeronicaLodge]

Believe it or not, doing this was actual advice from a mediator/attorney who we saw. She told us that the other wouldn't be responsible legally because it would go to court and the Quit Claim Deed would absolve the other spouse (or something like that; honestly I don't remember the details because we haven't yet drawn up the paperwork or made any final decisions, but we see her again next week so I'll get details).

if an attorney told you that, you need to find another one asap because that is completely wrong.

 

[HomeGuru]

if an attorney told you that, you need to find another one asap because that is completely wrong.

**A: yes that mediator/attorney is an idiot.

 

[MFinancier]

Wow...you are going to get yourself all tangled up over about $86.00 more per month on a hypothetical 22 year mortgage with a present rate of around 5.875%. Assuming both mortgages are held the full period and you actually live 22 more years, the present value of that is around $12,700.00 (your half would be $6,350.00 and that would barely cover the cost of litigation if something blew up)....and the future value of staying on each others mortgages, worrying about each others credit, health, employment, new spouses, legal problems, lawsuits etc. etc. etc....is priceless!

 

[Sesom]

math challenged

I will be sure to check with the mediator that this indeed what she meant - I may be the idiot here and totally misunderstood. I'll find out next week when we meet again.
Also, I fully admit that I am math-challenged, so I'm not following the line of thought about this being worth about $6k - can you please help me understand? The rates I've been quoted (without the application submitted yet) are closer to 6.125%.
Thanks again all. This has been very helpful so far.

 

[MFinancier]

I will be sure to check with the mediator that this indeed what she meant - I may be the idiot here and totally misunderstood. I'll find out next week when we meet again.
Also, I fully admit that I am math-challenged, so I'm not following the line of thought about this being worth about $6k - can you please help me understand? The rates I've been quoted (without the application submitted yet) are closer to 6.125%.
Thanks again all. This has been very helpful so far.

Well I'm no genius either and this is just a rough comparison and a tough one at that because you will need to be borrowing similar amounts and you've already paid down 8 years of principal and interest on your/his mortgage...but I'm estimating the payments on a 30 year 4.875% $175,000 mortgage with 22 years left and $150,000 principal remaining after 8 years of amortization (I don't know what your actual mortgage is so I'm using these fiqures for a comparison) are around $926 mo.....and the payments on a similar $150,000 amount at 6.125% for 22 years are around $1,034 mo....making the difference around $108 mo. (at 5.875% the difference is around $86 as I posted earlier) The present value of $108mo. for 22 years is $15,600 ($12,700 at 5.875% as earlier posted). If you split the difference with your STBX it would be $7,800 ($6,350 at 5.875%). The higher the rate on the new 22yr. mortgage for you, or the bigger the amount...the bigger the difference, but the point is it's not as much as you think.

 

[fre802]

It doesn't have to be this complicated. Talk to your mortgage lender. They can be pretty amenable given the hard times in the industry right now and the fact that you may refinance with someone else. Have your husband (he should call because he's the one keeping the house) tell them you are separating and are going to quit claim the property to him, and under those condititions could they amend the mortgage contract to remove your name. It doesn't hurt to ask. My lender did it for me without batting an eye. They said all that mattered to them was that the person whose name was on the mortgage was the person whose name was on the deed. With this way, he keeps his low interest rate, you buy your own place in your own name, and you make a clean financial break from each other. It's worth a shot. Worst case is, they say no.

 

[Ohiogal]

OP do NOT quit claim the property until you are at closing.

 

[mistoffolees]

OP do NOT quit claim the property until you are at closing.

That should be standard advice to nearly everyone. I can't understand why so many people are willing to sign quit claims before everything else is settled.

 

[Ohiogal]

That should be standard advice to nearly everyone. I can't understand why so many people are willing to sign quit claims before everything else is settled.

Too many people do NOT know what a quit claim is. They assume it deals with mortgages.