When two people get divorced, a few different things could happen regarding the marital home. One person might stay in the home while the other either rents or buys a new place. Or, the couple sells their home and each decides whether to rent or buy a new home. So, in most cases, someone needs a mortgage. Whether it’s a new home, or the person in the marital home having to refinance, mortgage and divorce go hand-in-hand.
These days, if you have to refinance because of your divorce, or you need a new mortgage, (for any reason, not just divorce) you’re in luck! I’m talking about interest rates. Mortgage interest rates are historically low.
What does that mean to you? Opportunity!
Whether you are getting divorcedor you are already divorced, consider refinancing your home. It’s a lot more simple than you think, and it can come with NO cost to you.
Plus, there are many advantages!
When it comes to your mortgage and divorce, here are 4 advantages of refinancing your home:
1. Your monthly mortgage payment will be lower.
That’s just free money. You can take the money you save every month and use it to pay other bills, put it into your kids’ college fund, put it in a savings account (emergency fund), or even take a vacation.
2. You can do a cash-out refinance.
This means if you choose to, you can pay off your current loan AND get additional cash back. You can use this extra money to pay off ANY debt you have (often times from credit cards) or you can start/contribute to your kids’ college fund, start/add to a savings account (emergency fund) etc.
The big advantage to paying off credit card debt is that, even with a higher mortgage loan amount, the combined payments will likely be REDUCED significantly.
For example, let’s say you have a 250k mortgage with an interest rate of 4% (principal and interest payment of $1,194/month) and 30k credit card debt with an interest rate of 20% (and a minimum payment of $700/month). Total monthly debt of $1,894/month. If you were to refinance into a 280k mortgage (paying off 250k loan and 30k credit card debt) with an interest rate of 4% (principal and interest payment of $1,337/month), you’d be saving $657/MONTH ($1,894 – $1,337).
3. You can reduce OR increase the term of your loan.
Reducing the term usually means you will pay LESS INTEREST over the course of the loan–because you are paying the loan off over a shorter period of time (shorter time usually means less money going toward interest). Increasing the term usually means your monthly payments will DECREASE because they are spread out over a longer period of time.
4. You can pay down principal on your loan.
If you have just received a lump sum payment as the result of a divorce settlement, you can choose to use some or all of it to pay down the current mortgage amount. For example, using the same 250k mortgage loan amount (from the above example) with a principal and interest payment of $1,194/month, you could pay down your mortgage by 50k to make it a 200k loan. Instead of paying $1,194/month, your new payment would be $955/month, a savings of $239/month. You’d have to weigh the pros and cons of parting with 50k of cash, but it’s an option.
If you are interested in finding out what options are available to you when it comes to your mortgage and divorce, I’m happy to discuss the specifics of your situation.
Editor’s note (from Jackie Pilossoph):
Several years ago, before I went back to work, I needed money. So, I ended up refinancing my mortgage three different times. Each time I refinanced, my interest rate got lower (which meant my monthly mortgage payment went down) and I was able to take out some cash to pay bills.
I never incurred any fees to refinance (mortgage bankers make their commissions from the bank-not the client), and the process was relatively easy.
I’m not suggesting that you take money out of your home; that may not be the best investment strategy. I’m just trying to give you an option, should you need some extra cash and/or want to lower your monthly mortgage payment.
But even if you don’t need money from your home equity, refinancing makes complete sense right now simply because of the historically low interest rates.
I would suggest this. Locate your most recent mortgage statement and see what your interest rate is. If it’s above 3%, then, call Jeremy Woods. I have known Jeremy for about a year and a half, both professionally and personally. He is an experienced mortgage banker, he’s a divorced dad, and he’s lovely to work with.
In closing, being a single parent and owning a home isn’t easy. Refinancing might one way you can benefit financially, and take some unnecessary stress off your plate.
Jeremy Woods (NMLS #112818) is a Senior Residential Mortgage Banker with CIBC. He has been in the industry for 14 years. A University of Wisconsin-Madison graduate, Woods can work with clients in all 50 states, handling both purchases and refinances for primary homes, second homes and investment properties. Learn more here, or email Jeremy: Jeremy.Woods@CIBC.com or call: (847) 691-7888. All loans subject to underwriting guidelines and must be approved. CIBC is an equal housing lender and member FDIC
Like this article? Check out, “6 Tips To Getting a Mortgage After Divorce”