The Break-up & What happens to your mortgage??
When a couple first separates, nothing really changes in terms of their legal responsibilities towards the mortgage. If both partners have signed the mortgage agreement, they both technically still own the property and are both equally liable for the mortgage payments. This joint responsibility remains in place until the mortgage is either refinanced or paid off.
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Determining Equity and Deposit??
The amount of equity you have in your home plays a significant role in determining your options after a break-up. Equity is the difference between the value of your property and the outstanding balance on your mortgage. Your equity can be used as a deposit for a new mortgage, which can be essential when trying to buy out your partner or purchase a new home.?
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Selling the Family Home??
In some cases, both partners may decide to sell the family home and split the net proceeds. This is a relatively straightforward process, as the property is sold on the open market, and the proceeds are divided according to the agreed-upon terms. However, it's essential to consider any additional costs associated with selling the property, such as real estate agent's commission and marketing fees, legal fees, and any potential decrease in the property's value.
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Buying Out Your Partner??
If one partner wants to stay in the family home, they may choose to buy out their former partner in a private sale. Normally a registered valuation will take place to determine fair market value for the property and a new mortgage would need to be taken out for the person wanting to buy the property. Before a lender will approve a new mortgage, they will need to assess your financial ability to afford the ongoing mortgage payments. This assessment will also take into account any new expenses associated with child custody or child support payments and they will most likely want to see a formal separation agreement.
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Addressing Income Inequality ??
In many relationships, one partner earns more than the other. This income disparity can add an extra layer of complexity to the mortgage process after a break-up. The goal should be to reach an agreement that allows both parties the best chance of getting back on the property ladder. In some cases, KiwiSaver funds may be used to help buy out a partner or contribute to a new mortgage after a break-up. This is typically done through a "second chance withdrawal”, which requires approval from Kāinga Ora. Kāinga Ora will assess your eligibility for a second chance withdrawal based on your financial situation and if you are going to be in a similar position to that of a first time buyer when you separate.?
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Seeking Professional Advice?
As mentioned above, the lenders may require you to provide a formal separation agreement so making sure you engage a lawyer early on in the process is a good idea. If you think that you may be liable for any?tax under the bright line test, then talking to an Accountant to get some advice will also be beneficial, just to make sure there are no unexpected surprises when it comes time to split everything up.?
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Mortgage Advisers are used to helping everyone, including those going through a breakup or divorce.
It's essential to involve a Mortgage Adviser as early as possible once you have reached a broad agreement on the desired outcome of your separation.
I can provide valuable guidance and support throughout the entire process, helping you find the best possible solution for your situation.
Rodney
?? 0274 555 863