The process of filing for divorce involves a thorough assessment of a couple’s finances. Depending upon the family’s circumstances, it may make sense to refinance their mortgage if one wishes to remain in the family home. In some cases, it may even be an arrangement that is part of the final decree.
There are several options
There is a lot of paperwork and details to iron out during this time, which may prompt one to put it off, but there are many reasons to pursue refinancing. The big reason is that mortgages are currently at historic lows, which is good for keeping the old home or buying a new one. Other reasons include:
- Lower monthly payments: Depending on income moving forward and the family’s ability to support two households, it can make sense to lower that monthly payment. Even if money is not an issue, some may wish to use that difference to start a college fund, spend it on travel or build up a savings account.
- Generates cash flow: Refinancing can be used to assemble a down payment for the other spouse’s new home, pay off high-interest credit cards or other significant debts, or pursue investment opportunities.
- Increase or reduce loan term: It may make sense to shorten the loan term to reduce the amount of interest paid over time, or to extend the term to reduce the monthly payments.
- Reduce the principal: Some like to use a lump sum of a divorce settlement to pay down the loan amount, thus shortening the term or reducing the monthly payment.
Mortgage bankers are happy to discuss this matter and help clients find the right solution. Any fees incurred put in the loan, and the mortgage bankers earn their commissions from the bank instead of the homeowner. Moreover, the process for any of the above arrangements is relatively easy.
Structuring the decree
Those filing for divorce may wish to use one of the above options when dividing up the marital assets. A family law attorney can help clients make these arrangements to ensure that they are fair and equitable. If done right, it can help ensure that both spouses start their next chapter on firm financial footing.