When it comes to securing a loan for a home, a joint mortgage is often the right decision. A joint mortgage is when two people are listed as borrowers for a loan. For larger loan amounts, joint mortgages improve approval chances due to combined income and assets, and can help you pay off your mortgage faster.
While there are many benefits, life can take unexpected turns. A joint mortgage may need to be dissolved due to death or divorce/separation. In some cases, the mortgage transfers to the surviving borrower, but this isn't always guaranteed, especially during divorce proceedings.
Removing a name from a mortgage involves legal steps. Working with a mortgage broker is strongly recommended to guide you through the process efficiently.
At Mares Mortgage, we make financing your home simple. Here's your complete guide to getting out of a mortgage.
Related: Questions to Ask a Mortgage Lender
1. Pay Off the Mortgage
A straightforward option, if financially possible, is to pay off the mortgage. This requires both borrowers' consent and the financial means to complete the payment. Once paid off, an attorney should help facilitate the process and ensure a reconveyance is issued. This document proves the loan is paid in full and the lien has been removed from the title.
Paying off your mortgage completely eliminates ongoing obligations and frees both parties from future liability. This works best when you have access to significant liquid assets, whether from savings, an inheritance, or proceeds from another property sale. Keep in mind that paying off your mortgage early may not always be the smartest financial move if you have low mortgage interest rates compared to other investment opportunities.
Another option is to find a new co-borrower or co-signer. This is typically done through refinancing. The new co-borrower does not need to occupy the home. Parents, for example, often co-sign for their children to help them qualify. Both parties must meet qualification requirements to refinance the loan.
You may ask the lender for a release of liability. If the remaining co-borrower can demonstrate they are financially capable of handling the payments alone, the lender may release the other borrower from the loan. Required documents usually include pay stubs, tax returns, and proof of creditworthiness.
A release of liability is one of the least common options because lenders are reluctant to reduce their security. Your chances improve if the remaining borrower has significantly increased their income since the original loan was issued or if they've built substantial equity in the property.
Related: Reasons to Refinance Your Home
Filing for bankruptcy under Chapter 7 can discharge your obligation from the mortgage. The remaining borrower would take on full responsibility for the loan. This is typically considered a last resort and should only be explored with legal guidance.
Bankruptcy has serious long-term consequences. A Chapter 7 filing stays on your credit report for up to 10 years and can affect your ability to get a mortgage, rent an apartment, or even secure certain jobs. Chapter 13 bankruptcy, which involves a repayment plan, may be an alternative worth discussing with a bankruptcy attorney if you want to keep the home but need to restructure your debts.
Selling the home to pay off the mortgage is another option. It absolves both parties from future obligations and provides a clean break. Ensure your name is removed from all property records and mortgage documentation post-sale.
A traditional sale works best when you have equity in the property. The proceeds pay off the remaining mortgage balance, and any leftover funds are split according to the ownership agreement. Working with an experienced real estate agent can help you price the property competitively and navigate the selling process smoothly.
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Refinancing allows the borrower who plans to stay on the loan to apply for a new loan in their name only. This person must qualify based on their own income, credit, and assets. A mortgage broker can help locate suitable refinancing options to increase approval chances.
Refinancing is one of the most common ways to remove a co-borrower from a mortgage. The process involves applying for a new loan that pays off the existing mortgage.
While this offers a clean solution, you'll pay closing costs again, typically 2 to 5 percent of the loan amount, and the new interest rate will be based on current mortgage interest rates rather than your original rate. The remaining borrower needs to prove they can afford the mortgage independently through income verification, credit checks, and a new appraisal.
Mortgage assumption means one party takes full responsibility for the existing mortgage, keeping the original terms (interest rate, loan term, etc.). Loans backed by the FHA or VA are usually assumable. Lender approval is still required, and an assumption agreement will be issued upon completion.
Loan assumption can be attractive when current interest rates are higher than your existing rate. Government-backed loans (FHA, VA, USDA) are generally assumable, but conventional loans rarely are. The assuming borrower must demonstrate creditworthiness and pay an assumption fee, which is typically much lower than refinancing costs.
A loan modification adjusts the terms of an existing mortgage, often to lower the monthly payment. A lender may agree to remove a co-borrower if the remaining borrower proves they can manage the new terms alone. Most mortgage modifications are approved due to temporary financial hardship, which must be documented.
Loan modifications differ from refinancing because they change your existing loan rather than replacing it. Modifications can include reducing the interest rate, extending the loan term, or removing a co-borrower if the remaining borrower's financial situation has improved. To request a modification, submit a hardship letter and financial documentation. The process can take several months, so maintain communication with your loan servicer throughout.
Related: How to Pay Off Your Mortgage in 5 Years
When you owe more than your home is worth or can't afford payments, traditional options may not work. Alternative strategies can help you avoid foreclosure and minimize credit damage.
A short sale lets you sell your home for less than the mortgage balance if the lender approves and you show financial hardship. It still affects your credit, but usually less than foreclosure, and the lender must confirm in writing that the remaining debt is forgiven.
A deed in lieu means signing your home over to the lender to be released from the mortgage, often faster than a short sale since no buyer is needed. Lenders usually require a clear title, and while it impacts credit, it’s seen more positively than foreclosure.
Strategic default is when a homeowner stops paying because the property value falls below the mortgage balance. Choosing to walk away from your mortgage can severely damage credit, with foreclosure staying on your report for seven years and lowering your score by up to 400 points.
Removing your name from a mortgage doesn't automatically remove your name from the property deed. To fully separate from the property, you need to address both the mortgage and the title. A quitclaim deed transfers ownership but doesn't release you from mortgage obligations. Tax implications are another concern, as forgiven debt may be considered taxable income.
Consult with a tax professional before finalizing any agreement involving debt forgiveness. If you're facing overwhelming debt beyond your mortgage, explore resources to help you get out of debt and regain financial stability.
Ready to explore your mortgage options? Get personalized guidance from our mortgage experts to find the best solution for your situation.
There are many valid reasons why someone might want their name removed from a mortgage. Choosing the right method, whether it's refinancing, selling, or loan modification, is critical. A professional mortgage broker can guide you through these options with clarity and ease.
Contact Mares Mortgage today to explore mortgage loans and financing solutions that fit your needs.
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