How to Remove a Name From a Mortgage Without Refinancing

A divorcing couple moves boxes out of the home they shared.

Typically, removing a name from a mortgage could require you to pay off the loan in full or refinance it with a new loan. But, there are alternatives where you can take over the loan without paying off it off or refinancing. These could include mortgage assumption, loan modification and bankruptcy. Here’s what you need to know.

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Why Would Someone May Want to Be Removed From a Mortgage?

The end of a marriage or a business partnership, and improving your financial standing by lowering your debt-to-income ratio are common reasons why someone may want to be removed from a loan. When you do this, you can potentially free up credit for other investments or ventures, such as starting a new business.

But, getting removed from a mortgage involves a formal process by which an individual’s legal obligation to repay a home loan is terminated. Here are four common ways to get removed from a mortgage:

Refinancing the loan in the name of the remaining borrower
Selling the property to pay off the existing mortgage
Obtaining a release of liability from the lender
Undergoing a legal processes for divorce or the death of a co-borrower

How to Remove a Name from a Mortgage Without Refinancing

A man who's getting a divorce prepares to sign paperwork removing himself from his and his wife's mortgage.

Refinancing is a common solution for removing someone from a mortgage but it’s not always ideal, as it can incur considerable closing costs and may be less favorable if market interest rates have risen or if a homeowner’s creditworthiness has declined.

Moreover, refinancing may not align with the personal goals of those involved, like when one party wishes to retain the home while severing financial ties with an ex-spouse. As a result, they may have to explore alternative strategies that can adjust mortgage responsibility without the need to refinance and preserve the original loan’s terms. Here are three options:

Mortgage Assumption

Before considering mortgage assumption, it’s important to understand that this process is subject to lender approval, and not all mortgages qualify for it. Mortgage assumption involves one individual taking over the payment responsibilities and terms of the existing mortgage from the original borrower.

For instance, in a divorce scenario, one partner may want to keep the house and assume the mortgage solely. Assumable mortgages are more common in government-backed loans, such as those from the Federal Housing Administration (FHA), Veterans Affairs (VA), or the United States Department of Agriculture (USDA).

To proceed with a mortgage assumption, the person who wishes to take over the mortgage must apply with the lender and meet their credit and income requirements. This process can be preferred to refinancing because it usually involves lower closing costs and can be completed more rapidly. However, the lender’s approval is not guaranteed, and the person assuming the mortgage must be financially capable of handling the payments.

Loan Modification

A loan modification involves a change to the terms of an existing mortgage loan, agreed upon by the lender and borrower. This could include removing a co-borrower’s name from the mortgage. A loan modification is typically considered when homeowners face financial hardship or significant changes in their circumstances, which may include divorce.

Like mortgage assumption, the lender’s approval of a modification is not guaranteed, as it requires a detailed review of the borrower’s financial situation to ensure continued repayment without the co-borrower.

Bankruptcy

Bankruptcy is a severe legal procedure that significantly impacts an individual’s debt and financial standing, including mortgage obligations. In the event of a bankruptcy, the specific outcomes for a mortgage will depend on the type of bankruptcy filed. Chapter 7 may lead to a discharge of the borrower’s responsibility to repay, while Chapter 13 could result in an adjusted repayment plan that includes the mortgage debt.

The implications of bankruptcy are profound, affecting credit scores and the potential for future homeownership. Those considering this route must evaluate the long-term consequences and engage with a bankruptcy attorney to navigate the process and its effect on mortgage responsibilities. It’s essential to maintain neutrality when discussing bankruptcy, emphasizing it as a last-resort measure to be pursued with expert advice.

Removing Your Name From the Deed

A divorcing couple turns away from each other while sitting on a couch.

The deed is a legal document that signifies the ownership of the property, whereas the mortgage is a financing agreement that uses the property as collateral. It is imperative to be removed from both documents to avoid any potential financial and legal repercussions.

Should an individual remain listed on the mortgage, they are legally obligated to fulfill the loan requirements. Similarly, retaining one’s name on the deed implies continued ownership, which may result in obligations such as property taxes and maintenance expenses.

A quitclaim deed can be a straightforward solution for individuals who want to relinquish their ownership interest in a property. This legal instrument allows for the transfer of ownership without the assurance of a clear or lien-free title. It is particularly useful in non-sale situations, such as property transfers between family members or as part of a divorce settlement.

However, quitclaim deeds do not offer the same level of protection as warranty deeds, which include guarantees against future title disputes. When opting for a quitclaim deed, it’s advisable to consider the following: the relationship with the receiving party, the history of the property, and the potential for future disputes. Individuals must weigh the benefits of expedience against the potential risks of an unguaranteed title when considering the use of a quitclaim deed.

In the context of divorce, for example, quitclaim deeds are commonly used to facilitate the transfer of property between spouses. The deed enables one party to transfer their interest in the marital home to the other, effectively renouncing their claim to the property.

Pros and Cons of Removing a Name From a Mortgage Without Refinancing

Removing a person’s name from a mortgage without refinancing has its advantages, but it’s important to note the potential drawbacks of this process. Let’s start with a roundup to the potential benefits first:

Avoid refinancing costs: Refinancing a mortgage is often synonymous with incurring various expenses, which can be sidestepped through alternative methods like loan assumption or modification. For example, borrowers typically face application fees, appraisal fees and other closing costs that can total between 2% and 5% of the mortgage principal.
Maintain original interest rate: A primary incentive to remove someone from a mortgage without refinancing is to keep the original interest rate. Borrowers with rates at the lower end of this spectrum have much to gain by preserving their initial rate, especially in contrast with potentially higher market rates.

However, there also potential drawbacks to removing a person from a mortgage:

Lender approval required: The lender may simply deny a request to assume or modify a mortgage. Even with approval, a formal assumption can entail additional costs and legal requirements, which can complicate the situation and increase financial strain.
Financial burden for the remaining owner: When one person decides to assume full ownership of a property, they become solely responsible for paying the mortgage. While they must prove to the lender that they can afford the mortgage payments on their own, this can be a significant financial burden, especially if the original loan was approved based on dual incomes or financial contributions.

Bottom Line

While refinancing is the most straightforward and obvious way to remove a person from a mortgage, that option isn’t always available or optimal. Doing so without refinancing is possible via mortgage assumption, loan modification or even bankruptcy. However, the process can be limited by lender policies and potentially burdensome for the remaining homeowner.

Tips for Managing Your Mortgage

If you’re looking to refinance your mortgage to lower your monthly payments, consider using SmartAsset’s refinance calculator ahead of time to get a sense of how much of an impact a refinance could have.
A financial advisor can help you build a financial plan that accounts for your mortgage and other expenses. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.