In many divorces, or co-habitation situations, parties are faced with the decision about what to do with the main residence upon their divorce or separation. If the parties sell the residence, things are generally fairly simple as they can divide the community interest in any proceeds at the time of closing. If one party wishes to retain the residence, it is a bit more complicated.
In order for one part of a couple to retain the home, they will typically go through the process of refinancing that home. The process of refinancing has two main objectives. First, to remove the name of one spouse from the mortgage so that the spouse retaining the marital home is the only mortgagor. Second, when retaining the marital home the retaining spouse will usually need to “buy out” their spouse’s equity from the home. Refinancing can accomplish both of these things.
The Divorce Lending Association outlines the two main types of refinancing: Rate/Term refinance or a cash-out refinance. Rate/Term refinancing generally has more favorable terms lower interest rates and more access to equity than cash-out refinancing. These are things you should discuss with your family law attorney to ensure your Marital Settlement Agreement outlines means of refinancing that are more favorable.
If you are interested in learning more about refinancing one of our office’s favorite resources is Jim Bakhtiar. Jim has many excellent blogs on the topic of home mortgages, but I have two favorites. One focuses on all things homes, lending and mortgage and the other is specifically geared towards divorce related resources. Jim is a Certified Divorce Lending Professional and works to put together what he calls the “Puzzle Pieces of Divorce”: divorce law, real estate, tax law, and mortgage financing.
The last thing we want to be sure to touch on are some of the major changes we are seeing in the borrowing and lending industry due to COVID-19. While the tips Jim has on his website are helpful for any season of life, the pandemic and steps to mitigate its financial toll have adjusted some major factors. Most importantly, the Federal Reserve, which sets interest rates or the price of borrowing money, has set interest rates at near historic lows. This means that refinancing right now could lower the interest rate on your mortgage. We recommend speaking with your attorney about how this could impact you and for a referral to a financial expert like Jim.
We pride ourselves on helping our client’s make connections with the right resources to launch them on a new path. In addition to people like Jim, we are happy to put our client’s in touch with realtors that will be able to assist them with selling a current residence and finding a new home of their dreams. One of the core values of our Firm is helping our clients successfully transition into the next stage of their lives.