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Financial Issues This forum is for discussing any of the financial issues involved in your divorce.

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  #1  
Old 01-13-2018, 01:51 PM
toilet toilet is offline
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Default Is there a prepayment penalty when refinancing?

Hi,

Im planning on separating soon but the mortgage is also coming up for renewal. I was planning on just letting her keep the house and equity. We were thinking of signing for a second 5 year closed mortgage so that she can get a better rate and lower biweekly payment. But would there be a prepayment penalty if she were to go to the bank later on and get the mortgage changed to her name only? Would she be able to keep the same rate/payment and would there be a large prepayment penalty because wed only be a month or two into a 5 year term?

We went to the bank and did not tell them we plan to separate. We were given the usual options: 6 month open, 1,2,3 years closed etc. The best rate is with the 5 year closed.

If she IS financially able to assume the mortgage on her own, do banks for their clients to break the mortgage and pay the prepayment penalty, and get a new mortgage? Would this be one of those cases where the penalty would be $15,000 or something crazy high?

If she is NOT able to assume the mortgage and had to break the mortgage, I assume wed have to pay a large penalty if we had to sell house.
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Old 01-13-2018, 04:47 PM
denbigh denbigh is offline
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It is not a simple as "just taking over the mortgage". If only her name is on it, then she will have to qualify for a mortgage on her own and basically take out a new mortgage. So unless your mortgage has no penalty for paying it off early (unlikley) then, yes there is going to be a penalty, and if you just renewed the mortgage then yes, it is going to be a very very large penalty. I dont know why you wouldnt just be honest with the bank and tell them your situation so they can tell you the in's and out's of what you need to do to have 1 person take over.

An option could be to keep the mortgage in both names and both own the house, but is that something anyone realistically wants to commit to for the next 5 years when divorcing? No.


What you can do is when your exsisting mortgage is up, pay a variable mortgage for now, with a 6 month term, or open mortgage (no term) so you can end the mortgage anytime you want without a penalty. It is a higher interest rate, but it is going to be a lot cheaper than the massive penalty you will pay for ending a 5 year mortgage a few months after you signed it. Hopefully you can finish up all the financial settlement within 6-12 months and then the variable open mortgage is over. That is the option my ex and I are doing.
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Old 01-13-2018, 05:10 PM
toilet toilet is offline
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I think the bank mentioned that if we bought a new house, there would be no prepayment penalty. We just pretended we were renewing like usual and had some hypothetical questions. We were trying To figure out how the prepayment penalty works but she didnt want to bring up anything about divorce. She said shed walk out of the appointment if I brought it up.
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Old 01-13-2018, 08:47 PM
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I think you are being a tad delusional.

When you divorce you separate your finances. Tricking a bank manager into thinking the two of you are still together is not a good way for you or your wife to start new lives.

You expressed angst over being dishonest to your wife about not wanting children (and letting her think you did for 10 years). Why are you now looking to "dupe" someone else?

Perhaps you need to get some personal counselling.... living honestly is a much better path.

Do you have your own individual lawyers?
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Old 01-13-2018, 10:14 PM
backinthesaddle backinthesaddle is offline
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I don't see this as "duping" anyone. It's not as if they are trying to get out of paying a mortgage but simply trying to determine what is best for them financially. We are also trying to figure out how my ex can keep the house on his own. We own several and not sure his income alone would qualify to keep the matrimonial home. He can afford it but with new rules etc it might be a stretch. I will hold onto the others hopefully. One to live in and one to rent but will sell one if I have to. I don't want to be tied to him financially either for the next several years. I too am giving ex more than what is legally necessary under Family Law. No guilt but some health issues he has may require him to rely on extra funds. He deserves a happy life and not out to make his life hell. Marriage breakdown is hard on everyone.
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Old 01-13-2018, 10:38 PM
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If I were financing someone and part of the contract is that borrower is to inform me of any change in their finances then I would expect to be informed accordingly. To not inform a lender of change of circumstances prior to borrowing would be reason for cancellation of agreement.

Lender has a right to know so they can assess the risk and charge customer accordingly.

Most people don't read their mortgage documents until it is too late.

When two people combine their incomes to qualify for a mortgage the bank has lent the money at a rate based on the two incomes - not "sorta" income.

New lending rules are there for a reason. Banks know that people are over-extended and an increase in interest rates leads to greater risk of foreclosure.
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Old 01-14-2018, 12:47 PM
denbigh denbigh is offline
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Quote:
I think the bank mentioned that if we bought a new house, there would be no prepayment penalty.
You probably have a portable mortgage, in which you "port" the mortgage over to the new property and there is no penalty. If the ex is going to be the sole person on the mortgage, will have to qualify on her own and open her own mortgage, which means that you are breaking the exsisting mortgage early and likely a penalty.

Why not just go to the bank, or a couple of banks and explain the situation and find out what you need to do, then you have the right information instead of trying to piece together info off the internet which may or may not be correct for your spcific situation.
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Old 01-15-2018, 03:20 PM
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I'm guessing that "toilet" (such a negative choice for a name) is thinking of keeping his name on the new mortgage to help his ex-wife continue to live in the home that she deserves.


A terrible plan of course, but that is my prediction.
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Old 01-15-2018, 03:34 PM
standing on the sidelines standing on the sidelines is offline
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Quote:
Originally Posted by toilet View Post
I think the bank mentioned that if we bought a new house, there would be no prepayment penalty. We just pretended we were renewing like usual and had some hypothetical questions. We were trying To figure out how the prepayment penalty works but she didnt want to bring up anything about divorce. She said shed walk out of the appointment if I brought it up.
if your name is also on the house then there is nothing stopping you asking for a print out of what it would be to end the mortgage on a certain date. She does not need to be there for that.

I did that a couple of times to see how much the the penalties were.
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