Aug 30, 2022
Refinancing vs Loan Assumptions
Usually, one of the biggest assets a couple needs to divide during the divorce is their marital residence. Normally, the practice is for one party to remain in the house and “buy” the other party out for their share of the equity in the property. This is commonly accomplished through a refinancing of the mortgage for the property which also removes one party’s name from the loan and the title.
Through the refinance process, the party remaining in the house obtains a new mortgage on the property. Recently, interest rates on mortgages have increased, making it difficult for divorcing couples to give up their established loans at lower rates. A loan assumption is an alternative, allowing for the mortgage payment, interest rate, and loan term to remain the same, while removing one party’s name from the documents.
Michael Routh, an Attorney at Alpha Center for Divorce Mediation, discusses financing options when dividing the marital residence.
A loan assumption would be a viable option to refinancing if the spouse staying in the residence has other means of paying the share of home equity to the exiting spouse. Further, the party assuming the loan must be able to qualify for the mortgage on their own. Additionally, the original loan must have language allowing for an assumption as not all mortgages are assumable. Moreover, some assumptions don’t always remove the other person’s responsibility to pay back the loan if it goes into default. Finally, with any transaction involving your mortgage, there will be a fee associated with the assumption. It is important to review the assumption with your lender to make sure it is accomplishing what is agreed upon in your property settlement document.
Although an assumption is a good alternative if you would like to keep your existing loan intact, it is important to understand all the legal ramifications that are involved. The attorney mediators at the Alpha Center can help you with this process. Accepting guidance from a firm that specializes in the practice of divorce mediation will ensure a smooth path along the difficult road of divorce.
Alpha’s program may not be fast and cheap, but it will certainly save you time and money over the long run. Let our expertise help ensure the best possible outcome for you, your spouse, and your family.
Alpha Center for Divorce Mediation