4 Reasons to Refinance
After Divorce
Divorces are anything but simple. The process can be complicated, time consuming and emotional. But there are time-tested mortgage options for divorcing couples that may help both parties. These depend on factors such as the amount of equity in the home, how it was purchased and titled, and whether one person wants to keep the home. Regardless of the complexity, almost any situation can be remedied.
1. Remove a spouse from the mortgage
To remove a spouse from the mortgage, it’s usually necessary for the spouse remaining in the home to refinance to a new loan in their name only. And as long as both names are on the home loan, both parties continue to be financially responsible for the mortgage in the lender’s eyes. If the spouse who remains in the house fails to pay the loan and it goes into foreclosure, the other spouse is still a co-borrower and is equally liable.
2. Remove a spouse from title
Refinancing after divorce removes a spouse from the mortgage, but it does not automatically remove the ex-spouses name from the house title. When one spouse will retain ownership of the home after the divorce, the departing spouse typically signs a quitclaim deed to remove their name from the house title. This action transfers ownership over to one spouse.
3. Access home equity
Refinancing after divorce can provide access to home equity for reasons other than buying out a spouse. For example, the spouse remaining in the home may refinance to supplement income, pay for home improvements, pay down other debt or fund a large purchase.
4. Buy out a spouse
Refinancing the home is one way to approach a divorce house buyout. If you’re trying to get equity out of the home to pay out the other spouse’s share of the house, a cash-out refinance can be the best course of action. This can often be more advantageous than unplugging retirement funds or tapping into other assets.
