What is a Divorce Mortgage?

There is a new mortgage product that is expected to be unveiled by certain European banks in a few months. It is called the Divorce Mortgage.

The idea seems to be that banks will lend money to one of the parties in a divorce to buy out their spouse. This way the party gets to keep the house. The way things are right now is that when parties divorce they often have to sell the house and split the proceeds because, except for the very wealthy, folks usually do not have enough money to buy out their spouse since the equity in their homes are usually their biggest assets.

Enter this idea for a divorce mortgage. So the bank would lend the party the cash to pay off the other spouse and this way the party stays in the house. But now you have two payments: the original mortgage and the divorce mortgage. There will probably be some kind of refinancing that would combine the to mortgages to one and the banks may drop your interest rates so that your payments remain the same or get smaller. Because that is another issue. With only one income, most people are not going to be able to pay higher payments that now include a Divorce mortgage. So the banks will have to lower the interest rate or extend the repayment period of the loan to allow for smaller payments to make this idea workable.

But it sounds like an interesting idea. Read more about it here.


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