Refinancing your house after divorce: What you need to know

Dividing property after a divorce doesn’t have to be overwhelming. Refinancing your home can be a solid step toward stability and a fresh start, and we’re here to help make that transition as seamless as possible.

Before you make any decisions about your next step, it’s important to know how refinancing works and what it can mean for your financial future. Let’s take a look at whether refinancing after a divorce works for you and what you should know about your share of the existing mortgage. If you can’t refinance after a divorce, there are other paths you can explore that can help you move forward with confidence.

3 reasons to refinance after divorce

Refinancing can offer many benefits, but it also brings some challenges. In other words, it might not be right for everyone. So as you consider your options, be sure to talk to a financial advisor to ensure it fits your unique situation.

Remember: Your divorce doesn’t affect your mortgage obligation — so your lender can still hold you and your ex-spouse liable as long as both your names are on the mortgage. That’s why refinancing can be an important step toward financial independence.

Here are three reasons to look into refinancing:

1. Separate your assets

After a divorce, it’s essential to untangle your financial obligations. If you maintain control of your property, refinancing allows you to remove your former spouse’s name from the mortgage. Conversely, if the property remains with them, refinancing can give you the freedom to step into your life’s next chapter without lingering obligations.

Separating yourself from the property can be an important step if you plan to purchase a new home after the divorce and take on a new mortgage — for instance, being removed from a home loan will lower your debt-to-income (DTI) ratio, which can help you secure a loan with a lower interest rate.

2. Protect your credit

Separating yourself from your ex on the mortgage helps you protect your credit rating, as well. For instance, let’s say your former spouse keeps the house but misses — or is late on — a mortgage payment. That will negatively impact your credit score, which can have major ramifications. A refinance that removes your name from the mortgage will ensure you’re not held responsible for debt that isn’t yours.

3. Access equity

With property values on the rise, you may have enough home equity to get cash from your house. A cash-out refinance can give you the opportunity to access this equity and split your assets with your ex.

For instance, say you want to keep the house but need to buy out your former spouse’s share of the home. You could need a large amount of cash to make that happen, and a cash-out refinance can help provide the funding that you could use to pay their share.

Mortgage vs. title

To determine whether you need to refinance after a divorce, it’s important to understand the differences between the names on your home’s mortgage and the names on the title.

Names on the mortgage

The names on the mortgage show who’s responsible for paying back the debt. If both you and your ex-spouse’s names are on the mortgage, then both of you are liable for the monthly mortgage payments.

If you intend to stay in the property and your ex-spouse’s name is still on the mortgage, there are two common ways to remove their name from the document:

• Release of liability: This document releases a borrower from their obligation to pay back the home loan. Not all lenders or servicers offer this option, so be sure to check whether it’s available.
• Refinance: When you refinance¹, the former spouse remaining on the mortgage must qualify for the new loan based on their income and assets. Lenders might also consider alimony and child support when determining eligibility.

Names on the title

The names on the home’s title show who legally owns the home, and it’s possible to be on the title without being on the mortgage. For example, if one of you wasn’t earning income when you were looking for a mortgage, it may have made sense for only the income-earning spouse to apply.

However, if your ex-spouse is on the title to the home, removing them from the title can be a simple matter of paperwork. There are two ways to go about doing this:

• Quitclaim deed: You can have your ex-spouse sign a quitclaim deed, which will transfer their ownership of the property to you.
• Home sale: If you can’t get a release of liability or qualify for a refinance without your former spouse, then selling the home might be the way to go. Doing this allows you to easily split the proceeds of the sale so you can divide your assets and move forward.

The bottom line: Refinancing after divorce may help you split assets

Your divorce may mark the end of one chapter of your life, but it also notes the beginning of another. Refinancing your mortgage can help you achieve financial independence and create new opportunities. By separating your assets and simplifying your obligations, you can enjoy the freedom to move forward with confidence and build the life you want.

Ready to take the next step on your new beginning? Let’s make it happen — contact us to start your journey today!

¹Refinancing may increase finance charges over the life of the loan.

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