I’m getting ready to file for divorce and sorting everything out ahead of time. The house is in both our names, but the mortgage is only in mine. I’ve always managed the finances on my own, as my husband is self-employed and hasn’t been too motivated. I cover all the bills, except his car payment, which is the only thing not in my name.
The mortgage balance is around $200k, and the house might appraise at about $375k now, although last year, the bank valued it at $300k to meet the 20% requirement for dropping PMI. This place is in a fantastic area, and I remodeled most of it myself, so I’d really hate to leave it behind.
I’d like to buy out his equity, but keeping my current rate of 2.375% would be ideal. I’ve heard that some people manage to do this with rate-and-term refis, but I’m not sure if that applies here. Financially, I could handle a $400k loan with my current rate, but moving to today’s rates would definitely make it tighter. And I’d probably face that issue with any home on the market right now.
Does anyone know if I have any options to keep my rate, or am I just stuck with the high rates everyone else is facing?
Unfortunately, keeping that low rate on a refinance isn’t possible… But you might consider a second mortgage or a HELOC. The rate would be higher, but it would only apply to the amount you’re paying out to him, not the whole mortgage. Another option is seeing if you can give him something else instead of home equity, like a retirement fund if possible.
A HELOC or home equity loan to buy him out would probably work best. Your blended rate would stay below market. Also, make sure to get an appraisal rather than just guessing his share. It could save you some money.
Here’s a rough breakdown: sale price - closing costs - realtor fees - current payoff amount = your equity. So something like 375k - 25k - 200k = about 150k in equity. Get a second mortgage for 75k, pay him off, and you can keep your current rate.
@Perry
Wow, I wasn’t even thinking about equity in those terms. I have an 840 credit score and low debt-to-income ratio, so I’m thinking a 15 or 20-year term with a decent rate could put me in a similar position.
@Tavis
That sounds like a good plan! Try looking into a home equity line of credit. You’d be buying him out and then can handle the paperwork to get him off the deed (well, maybe not emotionally, but legally it’s fairly simple).
I almost went through a divorce last year and even called my mortgage company, which is a credit union. Some banks let you apply to take over the loan terms, but you’d need to show proof of divorce and apply alone. In my case, since we have a young child, I wanted stability, so I used my 401k to buy out his equity. It’s not ideal to touch retirement funds, but I wanted stability for my kid. Thankfully, we worked things out.
Definitely talk to your lawyer. If the mortgage is only in your name, you shouldn’t need to refinance to keep the house. But, both of you have a legal claim to the property and its equity. He can be taken off the title, and a lawyer can help you make it official.
If you’re both on good terms, you could agree on the amount of equity he’s owed and pay him that. Otherwise, if he doesn’t want to give up his claim, things can get tricky.
If you end up needing more funds, you could look at a second mortgage or HELOC on your home, but it will have today’s rates. A lawyer would handle the legal aspects to ensure he’s off the title if you go that route.
You’re thinking of assuming the mortgage, but since he’s not on the note, you’re limited to either buying him out directly or doing a cash-out refi. If you split the house value, it would mean around $187,500 each. Since there’s $200k left on the mortgage, he’d owe you about $12,500.
I’m currently working on assuming my loan. Just sent off a big application packet to the bank, and now there’s a 14-16 week wait. It’s tough, but worth it to keep my 3% interest rate. Happy to answer questions if you have any.
@Blayne
Oh wait, since he’s not on the mortgage, it’s actually more straightforward for you. I’m using a HELOC to buy out my ex once I’ve removed him from the loan.