{"id":39780,"date":"2024-04-29T05:14:26","date_gmt":"2024-04-29T12:14:26","guid":{"rendered":"https:\/\/www.homelight.com\/blog\/?p=39780"},"modified":"2024-04-29T10:45:41","modified_gmt":"2024-04-29T17:45:41","slug":"loan-assumption-vs-refinance","status":"publish","type":"post","link":"https:\/\/www.homelight.com\/blog\/loan-assumption-vs-refinance\/","title":{"rendered":"Loan Assumption vs Refinance: Making the Best Choice in Divorce"},"content":{"rendered":"

In a divorce, the largest asset most couples divide is their marital home. Typically, one spouse opts to stay in the home, buying out the other’s share of the property’s equity. This buyout is often made possible through refinancing the mortgage, which also removes the departing spouse’s name from the loan and title. However, in this high-interest-rate market, couples are weighing \u201cloan assumption vs. refinance.\u201d<\/p>\n

The option of a loan assumption can allow the buyout spouse to retain the original mortgage’s payment, interest rate, and term, while still removing one party from the loan and ownership documents.<\/p>\n\n\n\n\n\n

\n
\n
\n \"homelight\n <\/div>\n \n

Unsure What to Do With the House? <\/h3>\n

Start with a free home value estimate from HomeLight. Input your address and answer a few questions about your home, and we’ll provide a preliminary estimate of home value in under two minutes.<\/p>\n \n

\n Get Estimate<\/a>\n <\/div>\n <\/div>\n<\/div>\n\n\n
<\/div>\n

Understanding refinancing in the context of divorce<\/h2>\n

As noted, refinancing during a divorce is a common strategy for the spouse who wishes to keep the marital home. Essentially, this process involves replacing the existing mortgage with a new one, which can serve two primary purposes.<\/p>\n

    \n
  1. Refinancing enables the buyout <\/strong>of the other spouse’s equity in the property, providing them with their share of the home’s value.<\/li>\n
  2. Refinancing removes the departing spouse’s name<\/strong> from both the mortgage and the home’s title, solidifying sole ownership for the remaining spouse.<\/li>\n<\/ol>\n

    In a typical scenario, the spouse staying in the home applies for a new mortgage. If approved, this new mortgage pays off the existing loan, and any additional funds secured through the refinancing are used to pay the equity<\/a> owed to the departing spouse. This arrangement provides a clear financial separation of assets and allows for a clear transfer of home ownership.<\/p>\n

    However, the current market’s higher interest rates bring a significant consideration to the forefront. To illustrate the impact of refinancing at a higher interest rate, let’s consider a scenario involving a $300,000 mortgage balance on a $450,000 house. The existing mortgage has an interest rate of 3%. If the spouse retaining the home refinances for a buyout at a 7% interest rate, here’s how the financials might look:<\/p>\n

    Existing mortgage at 3% interest rate<\/strong><\/p>\n