Some lenders in the United Kingdom are contemplating introducing something dubbed a “divorce mortgage.” According to one British newspaper, the idea for this financial product came from “a flood of older people being forced to sell their homes after they split in later life.”
As one financial expert notes, divorce mortgages could serve a real need here in the U.S. for the increasing number of people divorcing later in life –- what’s known as the “gray divorce phenomenon.” One study found that between 1990 and 2014, the divorce rate doubled among people in their 50s and older. Another survey found that in more than half of these “gray divorces,” one spouse chose to remain in the home.
Should I Stay or Should I Go?
It only makes sense that people who may have lived in a home for decades and raised their family there are less likely to want to give it up than a younger person getting a divorce. Further, moving to a new home amid the other tumult that divorce brings may be more daunting for older people than younger ones.
However, many divorcing couples find that their best option is to sell their homes and split the proceeds because it’s simply too expensive for one person to maintain it or for the other spouse to help pay for it along with his or her own new residence. That’s where the “divorce mortgage” comes in.
How Does a “Divorce Mortgage” Work?
The person who’s staying in the home takes out the mortgage. Most of those funds are used to buy out his or her ex’s share of the home. However, the remainder of the money is placed into a savings account that is used to pay interest on the mortgage. When the term of the mortgage is up, the borrower may choose to sell the home and repay the lender or convert it to a regular mortgage.
This can help get people over that initial challenging period after a divorce when you’re getting your financial bearings as a newly-single person and perhaps, particularly for women, getting back in the workforce. Your credit may still be tied up with your spouse’s, which can impact your ability to get credit on your own. Even if you’re going to be receiving spousal support, many lenders don’t count that as income until you’ve been receiving it for six months.
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