For a stable couple who plan to stay in one place for two or more years, buying a house is generally a sensible idea. In general, most authorities advise that a couple should not spend more than one-quarter of the combined income on housing, including the mortgage.

Unlike credit card lending, which is unsecured by collateral, mortgage lending is secured by the property -- the house and the land. For this reason, interest rates for mortgages are much lower than interest rates for credit cards. Because a house and land is also a home, most people pay residential mortgages promptly. (Indeed, when someone is in arrears on a mortgage, he or she is probably in debt and behind in his or her payments to other lenders.)

Unlike borrowing money to buy a car, which begins a dramatic depreciation the moment the ignition key is turned for the first time, a house, with reasonable care and maintenance, appreciates, and over time it often becomes the largest marital asset. Seen this way, mortgage borrowing is a sensible form of borrowing because it increases the wealth of the borrower. The tax deductibility of interest expense also greatly increases the so-called "throw weight" of housing dollars; that is, the affordability of a more expensive house.

Generally, when a couple buy a home, the mortgage is in both names, and they have joint and several liability. The date the couple assumes a mortgage is called settlement. At that time, the couple also sign a promissory note and a deed.

When a mortgage is paid in full it is said to be satisfied.

An outstanding mortgage is recorded and is a lien against the property.

At one time, conventional mortgages -- those with a fixed number of identical payments -- were the norm in residential lending. Such vehicles typically provided for a 20-year repayment. In this routine, each payment reduces the unpaid balance of the mortgage by a certain amount. Conventional mortgages are often said to be "front loaded" since in the beginning of the repayment, which is called amortization, the majority of each payment is interest. The principal, therefore, is reduced very slowly at the onset of the loan. This arrangement encouraged people to pay off the mortgage early because after the first half or the mortgage, a larger and larger part of each payment is principal, and the mortgage lost its tax advantage to the borrower. By this time, moreover, the borrower was generally older and in a better financial position.

In the past twenty-five years, a variety of what are sometimes termed "creative" financing mechanisms have gone of the market. One relatively new type of mortgage is the adjustable rate mortgage (ARM). An ARM mortgage is one in which the interest rate is not fixed but tied to some index and periodically adjusted up or down based on the changes in that index. Many ARM mortgages come with introductory low rates in the first three years, then reset themselves at much higher rates. Some experts have expressed concern that many of these ARM mortgages will go into default in the next several years and drive down the entire housing market.

In divorce actions, outstanding mortgages generally must be satisfied before the marital homestead can be sold and the proceeds, if any, divided.

Sometimes in marital settlements one spouse buys out the marital home of the other with a collateralized promissory note. In this arrangement, he or she pays the other a sum for a negotiated length of time at current interest rates. Since the money is a division of property, it is not taxable. The recipient does pay taxes on the interest, not the principal. The note is normally collateralized by the home. Generally, the lender -- the spouse receiving the payment -- is not given title to the property.

Your Suggestion

1. Debt Troubles? Talk to the Lenders
   Lenders do not like to foreclose on borrowers. Foreclosure is expensive and unpleasant. Anyone who is having trouble paying the mortgage should explain this to lender who may be able to suggest relief. Sometime, for example, lenders permit troubled borrowers to service the loan with only interest payments for a time.
   Contributed on 7/10/2007 by: DivorceDex.com Staff

   Category: Bankruptcy   (Applicable in All States)
2. Don’t Forget to Pay the Mortgage During Divorce
   Sometimes in the chaos and confusion of a separation, people forget the mortgage. The last thing a divorcing couple needs is trouble with the mortgage lender. Don’t forget to pay the mortgage on schedule.
   Contributed on 7/10/2007 by: DivorceDex.com Staff

   Category: Debt Division   (Applicable in All States)

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