By Chris Kramer
Most homeowners are naturally aware of the recent housing troubles. Whether you’ve seen your interest rates and mortgage payments fluctuate over the past year or two, or have seen the value of your home decrease with all the other homes in your neighborhood, you’ve likely been affected by the troubles in the housing market.
The question is, how far does your home and its mortgage go in defining lifestyle choices?
As just one example, the outcome of many divorces has been greatly impacted by the state of the couple’s home mortgage. Of course, the home is often the primary and most valuable asset that must be divided during divorce, and a mortgage loan is the central debt obligation for most couples; therefore, it also routinely becomes a source of dispute during division of assets.
But, lately, news outlets are reporting that the tone of the dispute has shifted.
In fact, with home values plunging and many mortgage interest rates—especially those in adjustable-rate mortgages—just as dramatically moving upward, couples are actually fighting to avoid getting the house. Higher payments on a mortgage that costs more than the house is worth makes the house a bad debt burden—one that neither side wants to shoulder. In extreme cases, a couple may even decide not to get divorced, or wait till a more opportune time.
Generally speaking, the financial negotiations that take place in a typical divorce proceeding are becoming more difficult, even if possession of the house is not a major dispute. Often the spouse who is awarded the house will renegotiate the mortgage loan to allow reevaluation of his or her financial situation and to eliminate the ex-spouse from the title. However, the current market situation has made renegotiation for nearly everyone tough, not only because of the depressed house values, but also because of tighter lending standards that make approval for a new loan next to impossible for borrowers who could easily have been approved just a few years ago.
Sometimes couples choose to sell their home, as well, using the profits from the sale to pay for legal fees and other settlements to start a new life. But houses can sit on the current market for months with little to no interest, as many local markets only see houses sold at cut-rate prices for much less than the mortgage is worth.
While it can be tough to see the value on a home that was purchased as a long-term investment drop to the point that it can only be sold at a loss, the recent market data suggests that this may be the stark reality for many couples. Divorce proceedings are emotional times for most, and getting an accurate appraisal of a house’s value may be hard to do for many who believe that the house should be worth more. But being realistic about its value could save lots of trouble, as it will likely lead to a faster sale time on the market and a more accurate picture of the couple’s financial assets.