Can My Daughter Remove Her Ex from Their 4% Mortgage?

When a couple buys a home together and then breaks up, the mortgage can become a complex issue. This is especially true when the mortgage has a low interest rate, such as 4%. In this article, we will explore the options available to a daughter who wants to remove her ex-boyfriend from their joint mortgage.

1. Refinancing the Mortgage
Refinancing is the most straightforward way to remove a co-borrower from a mortgage. By refinancing the loan in her name only, the daughter can take over the mortgage payments and responsibility. However, refinancing comes with its own set of challenges, such as:
- Income and Credit Requirements: The daughter must qualify for the full monthly mortgage payment on her own and have a good credit score (usually 640+ FICO score) to get approved without a co-signer.
- Home Equity: Typically, at least 20% home equity is required to avoid private mortgage insurance (PMI).
- Closing Costs: Refinancing costs often total 2% to 5% of the loan amount.
- Interest Rates: Without her ex-boyfriend, the daughter might not qualify for the best interest rates, potentially leading to higher monthly payments.

2. Mortgage Assumption
Mortgage assumption allows the existing mortgage to stay in place with the removal of one or more borrowers. This can be beneficial if interest rates have risen, as the original loan terms remain the same. However, mortgage assumptions require lender approval and usually involve a fee of about 1% of the loan amount. Additionally, the co-borrower's consent and a divorce decree or separation agreement may be required.

3. Mortgage Modification
A mortgage modification involves the lender agreeing to modify the existing mortgage by removing the co-borrower through a modification agreement. This adjusts the loan without refinancing, which can save money on closing costs. However, mortgage modifications usually need to meet the lender's hardship requirements and may not be approved if the remaining borrower does not meet the lender's qualifications.

4. Selling the Home
If refinancing or alternative options are not feasible, selling the home may be the only solution. Selling the property offers a constructive solution for co-owners to terminate their joint mortgage arrangement. The sales proceeds that pay off the joint mortgage allow a co-owner to exit an unhappy co-ownership relationship and acquire property independently. However, selling can be difficult if there is little equity or if the property is worth less than the mortgage balance.

5. Paying Off the Mortgage
Paying off the mortgage entirely ends the debt obligation for both parties. However, this is rarely plausible for most people, as it requires a significant amount of money. The remaining borrower may not have the financial resources to pay off the mortgage on their own.

In conclusion, removing an ex-borrower from a mortgage, especially one with a low interest rate, can be a complex process. The best approach will depend on the individual's financial situation and goals. It is important to carefully consider the advantages and disadvantages of each option before making a decision. Consulting with a financial advisor or mortgage professional can help you navigate these complexities and make informed decisions.