Refinancing and divorce
Divorce involves complicated financial matters. Topping that list is jointly owned real estate. If you get the house, what happens next? Are you buying out your partner? What happens to shared earned equity? How will you manage mortgage payments? Can you apply divorce settlements to the loan?
One of the most common ways to address home ownership logistics after divorce is through refinancing. It’s a simple process that allows you to reset the ownership and can provide additional advantages, including:
Lower monthly payments.
Interest rates remain very low, which means you are likely to receive a lower interest rate than was available when you purchased the home, and will finance less than the original home price. If you are concerned about mortgage costs without your partner’s income, refinancing may make a difference.
It’s possible to refinance your loan and receive cash back for the difference. This cash-out option can be helpful if you are buying out your ex-partner or need to compensate them for shared earned equity.
Adjusted loan terms.
Refinancing offers the chance to review your current loan terms and determine what works best for your new situation. Reducing terms — such as adjusting from a 30-year to a 15-year loan — may increase monthly payments but reduce the total amount of interest paid. Increasing the terms typically reduces the monthly mortgage payment, but you will pay more interest over the long term.
Refinancing can resolve many home ownership issues after a divorce, but every situation is unique. For example, perhaps you are awarded the house and also receive a lump sum through the divorce settlement. You may want to consider applying that toward your mortgage loan principal. Alerus’ experienced mortgage team is ready to guide you through your journey.