What happens to your mortgage after a divorce? – MoneySense

Who is responsible for the mortgage?

Both parties are responsible for the mortgage. As co-signers, both your sister and father would be equally responsible for the mortgage payments, Filipa. If your sister were unable to make the mortgage payments, the mortgage lender would expect your father to make them himself.

How co-signing a mortgage impacts your credit score and debt service ratio

Becoming a co-signer of a mortgage does come with detriments. If your sister is late on a payment, it would negatively affect your father’s credit score. It will show as a missed payment for him, even though he didn’t take out the mortgage himself. This happens because he’s a co-signer. 

Also, Filipa, if your father wants to buy other properties, the mortgage payments for the co-signed property will count fully towards his mortgage debt ratios (which are used to assess the risk of not being able to pay for another loan). This could mean that he won’t be able to afford to take out a mortgage even if he otherwise might qualify.

Implications of co-signing on someone’s estate

What are other issues that could arise from co-signing? The co-signer would be assuming all the risks that come with owning a property. This could negatively affect your father’s finances, Filipa. For example, the price of the home could decline. If the home needs significant maintenance that your sister can’t afford, your father may need to help cover the cost.

Also, Filipa, when your father eventually passes away, if the ownership is joint tenancy (when two or more people own a property together, each with equal obligations and rights), your sister’s entire mortgage (now half his) will not automatically come out of his estate. This is the case even if your father has enough money to pay the entire mortgage. The liability for the mortgage will transfer to your sister, and she will be in the same situation she finds herself in now. She must be able to qualify for the mortgage on her own or she will need to find a new co-signer.

Alternative solutions for maintaining a mortgage after a divorce

Divorce itself can be one of the most significant financial events someone may experience, especially when the courts are involved. I imagine your sister, Filipa, may have financial obligations outside of the mortgage and may feel overwhelmed.

Rather than stretching herself to the max and potentially risking your father’s financial well-being, your sister might consider selling the family home. I know it’s a tough pill to swallow. By doing this, though, she could afford to move into something more affordable and not find herself, as they say, “house rich, cash poor.”

With inflation near a 40-year high, living within our means is important these days. By buying a more modest house and taking on a lower mortgage, your sister will be able to move forward into her new life with reduced debt and the ability to live within her means.