The tumultuous process of a divorce can be painful and emotionally draining. With all the emotions and thoughts going through your mind, the last thing you’d want to worry about is dividing the marital or family home. But given that a home is probably the most expensive asset you’ll own, discussions on property division will naturally center on what happens with the house and mortgage.
The “cleanest” option?
Here are four reasons why.
It Protects Your Credit Score
Even if your soon-to-be-ex buys you out of the family home, you are still liable for the mortgage, which will come back to hurt your score should you miss a monthly mortgage payment. In the eyes of lenders, spouses—divorced or not—are liable for a joint mortgage, unless you sell the house, pay off the mortgage in full, or refinance to remove your name.
Remember, removing your name from the title does not remove your name from the mortgage, which means your credit score takes a hit when your spouse misses payments. Even if you trust your spouse and are parting on amicable terms, trusting him/her to continue making payments after you divorce is too big a gamble to take.
If you decide to keep the family home, your spouse will probably want a fair share of the equity. You have a number of options when buying out your spouse. For starters, you can offset the equity with other assets like a larger share of your retirement funds or savings.
You can also forego spousal support in exchange for the family home. Be sure to consult a Certified Divorce Financial Analyst to crunch the numbers and see if this is an equitable and financially sound option. You also have the option of a cash-out refinance, which lets you tap your equity to take a new mortgage, which you can then use to buy out your spouse.
Refinancing Provides Access to Low-Cost Capital
Leveraging your equity also offers other benefits aside from buying out your spouse. It’s common for many divorcing couples to be cash poor but house rich. With interest rates now at all-time lows, taking a new mortgage gives you access to low-cost capital, which you can use to pay off bills and credit card debt, create an emergency fund, invest in assets with a higher return than your mortgage interest, or make home improvements among many others.
It Lowers Your Mortgage Payments
With interest rates at historic lows since the 2088 recession, refinancing is a good way to bring down your payments. This is especially useful after a divorce when cash flow is tight because of the higher cost of supporting two households. Talk to a mortgage professional to determine whether it’s possible to lower your payments.