Couples who divorce have to make a long list of decisions during this process, some of which will impact their lives for many years. A decision on where to live certainly qualifies. While the newly single individual may want to make that decision with no input from the soon-to-be-ex, it may make sense for the couple to refinance their mortgage, perhaps as part of their final decree.
Some options to consider
Lenders will tell customers that mortgage rates are at historic lows. This is good news for those couples who wish to buy a new home, refinance the current mortgage to reflect their shift in finances or do both. The advantages of refinancing include:
- Lower payments: It may make sense to reduce this significant monthly expense, particularly if the interest rate was high. Lower payments can enable parents to pay other bills no longer shared, put the extra money towards a college fund or do some self-care by taking the kids on a trip.
- Cash-out: Refinancing can provide cash for a down payment for one spouse to buy a new home. It can also go towards servicing high-interest debt like credit cards – mortgage interest is generally the lowest loan rate around.
- Change the term of the mortgage: Shortening the duration means fewer payments with interest. Lengthening them can mean payments at a lower monthly amount.
- Pay more of the principal: It can make sense to pay down the principal if there is a lump sum as part of the settlement. This can reduce the monthly payment.
A mortgage banker can discuss the merits of each of the above options or offer one that better fits the client’s unique needs. It is worth noting that all fees incurred are folded back into the loan, which means little out of pocket expenses during this time of transition. Moreover, the banks pay the mortgage bankers’ fees. Those with questions of how this could impact the division of assets can talk to the attorney handling their divorce.
