While mortgage interest is down from a 23-year high earlier this year, some homeowners in Connecticut face higher rates after divorce. Unfortunately, your lender might make it difficult to continue with your original loan terms after ending your marriage, leaving you with no other option than to sell your property. So, is there a solution to this problem? Learn more below.
Mortgage Rates Post-Divorce
You might assume that your mortgage will continue with the same terms after ending your relationship. But that’s not always the case. If you had a 2% or 3% rate when you were married, that number could soar to 7% or even 8% when you remove your ex from your home loan. A much higher rate could make it difficult to afford your property in Connecticut.
So how does this happen?
Taking your spouse off your mortgage means your home loan is now under one name – yours. Because you own your property outright, you’ll need to compensate your ex-partner and qualify for refinancing based on a single income, potentially increasing what you pay every month. Those payments could be as much as double the amount you originally signed up for.
Interest rates might also be a lot higher now than when you purchased your property. That fixed-rate 30-year mortgage you signed up for after you got married could have been a great deal at the time. But the economy has changed, and you’ll probably need to pay significantly more after refinancing your home.
You might not even be able to qualify for refinancing with a single income. If a lender thinks you can’t afford repayments, you have no other choice but to sell your home and move on with your life. Even if you can afford repayments, your credit rating might have taken a tumble since you purchased your property, making you a liability to your mortgage company.
These are predicaments many people in Connecticut face after ending their marriage. Increased mortgage rates aren’t really something they think about when filing for a divorce with the courts.
What Can You Do?
There are a lot of issues to cover here. If you’re not able to refinance a loan with your existing lender for whatever reason, you might be better off looking elsewhere. Some lenders offer mortgage assumption, which allows you to continue the terms of your current mortgage in exchange for a fee. You pay the same monthly repayment and interest rate, and the term of your loan stays the same. Lenders will require you to take full responsibility for your loan and remove your former spouse’s name from your property title. That will require additional legal fees. Your ex-partner will receive their share of your home with money from your loan.
Of course, loan assumption requires cooperation from your ex-partner, which might not happen. Your ex might want you to sell your property instead and split any profit you’ve made. There’s also no guarantee a lender will agree to an assumed loan, especially if you don’t make enough money to meet repayments.
You might just want to buy out your ex’s share in your home with alternative sources of income. Few people have enough savings to be able to do this, so using retirement funds could provide a solution. If you have a 401(k), you could withdraw money from your account. However, you will need to pay tax and a 10% penalty if you are under 59½. There are ways to avoid this penalty, such as if you are experiencing hardship.
Alternatively, you can take out contributions from a Roth 401(k) without paying tax or a penalty. You will still need to pay taxes on earnings, though. Talking to a financial expert can help you make the right financial decisions.
How Can a Divorce Attorney in Connecticut Help?
Property division and refinancing can be tough after a divorce. That’s why it’s important to communicate with your ex-partner. That is easier said than done. It can be impossible to work out financial issues if you’re not on speaking terms with your former spouse.
Working with a reputable Connecticut divorce lawyer is a good idea. They can provide guidance and support before, during, and after a divorce and help you negotiate with your ex about these kinds of issues. That can prevent you from going to court to divide up your property, which can take months and rack up expensive fees.
Connecticut homeowners are often shocked to learn of higher interest rates after a divorce. Mortgage lenders might make it difficult for someone to continue with the original terms of their home loan, leaving them to explore other options, such as assuming a loan and withdrawing retirement funds. Whatever your financial future, working with an attorney can make the divorce process easier and improve communication between you and your ex.
Rich Rochlin has more than 22 years of experience in divorce law in Connecticut. Call (860) 357-9158, or click here to learn more.