What Happens to a Joint Home Loan When You Divorce?

Does divorce end a joint home loan?

No. Divorce does not change your loan agreement with the bank. Both borrowers stay liable for the whole loan, whatever the court orders between you.

Many people think that if the court lets one spouse keep the home, the other is released from the loan. That is not so. The court order deals with you and your spouse, not with the bank.

You are only released when the loan is refinanced in one name, or the home is sold and the loan is paid off.

What are your options?

1. One spouse refinances. The spouse keeping the home takes a loan in their own name. The bank must approve it based on that spouse’s income and credit. If approved, the other spouse is released and the property is transferred.

2. Sell the home. The sale pays off the loan. Anything left is divided according to the court order or your agreement. This is the cleanest option when neither of you can refinance alone.

3. Keep the joint loan for now. One spouse stays in the home while you both remain on the loan. This is risky, because you both stay liable. It is usually a short-term arrangement, for example until the youngest child reaches a certain age.

How does refinancing work?

The spouse keeping the home applies to a bank for a new loan in their name. If approved, the new loan pays off the old joint loan.

The bank checks the applicant’s income, credit history and other debts. If they do not qualify alone, you may need to sell or find a guarantor.

Refinancing also has costs, such as legal fees, stamp duty and valuation fees. Include these in the overall settlement.

What if neither of you can refinance?

Selling is usually the most practical choice. The sale clears the loan and anything left is divided.

If the home is worth less than the loan (negative equity), you may both still owe the shortfall after the sale. This needs careful planning and talks with the bank.

Sometimes the court may order the home kept for a period, with both of you sharing the payments, to protect the children. If so, put the payment arrangements in writing.

What should the settlement say?

Spell out the loan clearly:

• who pays the monthly instalments
• who lives in the home
• the deadline to refinance or sell
• what happens if refinancing is refused, such as a sale

If the spouse living in the home misses payments, the other spouse’s credit record suffers too. Enforcement terms in the settlement give that spouse a legal remedy.

What to do now

Check your loan: the balance, the monthly instalment and the years left. Ask the bank about refinancing and what it needs.

A family lawyer who knows property matters can help you choose between refinancing, selling or a short-term arrangement.

Looking to engage a divorce lawyer? If you are unsure whether to refinance, sell or keep the joint loan for now, request independent lawyer contact via WhatsApp: Request Lawyer Contact. For general information, use our guides and tools.