The Impact of Rising Interest Rates on Divorces and Mortgages
In this summary of my YouTube video, I discuss the issues of rising mortgage interest rates and its effects on bankruptcy and divorce cases. You can see the video below or at my YouTube Channel.
The COVID-19 pandemic has caused a significant economic impact. During the coronavirus pandemic, interest rates were lowered to stimulate the economy. This led to a surge in home buying as prices skyrocketed. But now, as the market stabilizes, interest rates are rising again.
How Mortgage Interest Rates Affect You
A low interest rate during the pandemic allowed borrowers to qualify for larger mortgages. For example, a $300,000 mortgage at a 2.72% interest rate translated to a $1,220 monthly payment.
With today’s higher rates, the same payment would only qualify you for a $182,000 mortgage.
How Mortgage Interest Rates Affect Divorce Settlements
When couples divorce, they must decide what to do with the marital home. Options include selling the home and splitting the proceeds or one spouse buying out the other’s interest. However, the higher interest rates make qualifying for a new mortgage virtually impossible.
A common issue arises when a spouse uses a quitclaim deed to transfer ownership but remains on the mortgage. This spouse is still financially responsible for the loan. If the other spouse defaults or files for bankruptcy, the first spouse could be dragged into financial trouble.
Recommendation: Aim for a Clean Break
To avoid future complications, divorcing couples should remove the other spouse from the mortgage with a mortgage refinance or sell the home. However, rising interest rates and the need to potentially pay off the other spouse’s equity can make this difficult and leave the spouse keeping the house unable to afford the new mortgage.
Conclusion
Divorcing couples facing a home and mortgage should be aware of the impact of rising interest rates. It can significantly affect affordability and complicate the financial separation process.
Colleges and universities can purchase my bankruptcy law textbook directly from Routledge Publishing. For paralegals and students buying single copies, you can do so via Amazon books. To access my YouTube channel, click this link.
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Please note the information on this site does not constitute legal advice and should be considered for informational purposes only. Always consult with a qualified local attorney for information specific to your case.
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