Many couples pool their resources together in order to be in a position to afford the most comfortable home they possibly can. In this instance, the bank or lending institution has looked at both spouses’ income, prospects for income in the future and credit. Most importantly, the lending institution enjoys the benefit of having both parties responsible for payment of the loan. Many couples don’t think of the possibility that their marriage may not last. Nonetheless, regardless of the status of the marriage, the bank is under no obligation to release a spouse from the financial obligation of the mortgage simply because the relationship is nearing its end. To complicate the matter, many couples discover that refinancing the mortgage to remove a spouse presents its own set of unique challenges.
A 2022 Lending Tree article by Alaya Linton looked at key points that couples should be aware of if they are considering refinancing a marital residence after divorce. Four essential reasons to refinance a mortgage after a divorce include:
- Removing a spouse from the mortgage. As long as both party’s names are on the home loan, they will continue to be financially responsible for the mortgage from the perspective of the lender. If one spouse fails to pay the loan, the other spouse is still a co-borrower and is equally liable.
- Buy out a spouse. Essentially, if you are attempting to get equity out of the home to pay the other spouse’s share, a cash-out refinance may be the best course of action.
- Access to home equity
- Changing mortgage terms. This could provide the benefit of lower interest rates and payments.
Some of the noted benefits of refinancing after a divorce include protecting the parties by removing the risk associated with missed payments, providing privacy for the spouse remaining in the marital residence, allowing a spouse to receive equity while the other spouse remains in the residence and lastly, refinancing can make mortgage payments more affordable. In the alternative, some of the cons or obstacles associated with refinancing include qualifying for a refinance will be more challenging now that it’s just one individual, borrower’s typically pay 2% to 6% off closing costs and refinancing may increase the cost of the mortgage payments, especially if the term of the loan is less or interest rates have increased.
Sometimes refinancing simply isn’t an option for the above-mentioned reasons. If couples aren’t able to refinance other options include selling the residence, investigating the reasons for not qualifying and simply waiting in order to improve one’s position so that it becomes a viable option in the future. The important thing to remember is simply taking a borrower spouse’s name off of the house deed does not change the joint responsibility of both parties for the mortgage. In many cases, refinancing the mortgage is the only way to achieve this.
For many of our clients, the idea of refinancing their mortgage isn’t something that is typically thought about at the beginning of the divorce process. The divorce process may present several conflicts which must resolved such as who gets primary custody of the children, whether a spouse is entitled to alimony, how martial property will be divided and of course, whether refinancing of the marital residence is necessary to achieve this. During this legal process it is critical to have the advice of an experienced Atlanta Divorce Attorney. The Faucette Law Firm, LLC represents clients in contested and uncontested divorce cases, child support, child custody, alimony, legitimation, adoptions and modifications. We serve Fulton, Cobb, DeKalb, Gwinnett, Clayton, Henry, Douglas, Henry, Fayette, Coweta, Carroll and Paulding. Contact our law firm today for a consultation.