It’s been interesting to observe how timing has impacted personal finances in divorces. A house purchased in 2020 might have carried a 2.75% interest rate, for example, whereas that very same house purchased today may be at 6.8%. When you’re talking about what could be a million dollar (give or take) mortgage in New Jersey, the monthly mortgage expense (not to mention the total amount of interest paid over the life of a loan) can be monumentally different. And of course, in a divorce, there is a fear of losing the rate, for those who do carry a favorable rate from a few years back. What impact does this have on divorce negotiations, and what if anything can be done to save the rate?
Mortgage Rates and Divorce
Maybe it’s not a fair characterization, but I like to think of mortgage lenders as vultures, awaiting some sort of change in circumstance to free themselves of the fixed rate thirty year mortgages they offered just a few years back at what now seem to be absurdly low rates. Given how much savings are attached to such mortgages, what a great asset they can be, most people are not willingly giving them up to simply purchase another home. There needs to be a big life event at play, such as a new job across the country, a divorce, or even a death.
Conversely, for the mortgage holders with favorable terms, they are often trying to do everything in their power to keep paying that low monthly rate until the mortgage is exhausted. But of course, not even a great mortgage rate will be enough (though I am sure there are some exceptions) for a couple to stay together when divorce is inevitable.
Ways to Save the Mortgage Rate?
There are two basic ways real property, such as homes, are treated in a divorce. They can be sold, or one party can buy out the other. We need not talk about the sale, as the parties will simply sell the property, often splitting any remaining equity, and will then generally be on their way to finding new living situations.
When it comes to buying out the other party, however, a refinance can now present a real problem. Because even though one of the parties will remain in the home, in the process of buying the other out and refinancing, they will lose their rate. You may try to assume the mortgage, but that is very unlikely to be acceptable to your lender.
Trust and Interest Rate Maintenance
Another option is to have one spouse remain on the mortgage and deed, with an agreement to wait it out until the rates go down, but we have now been in a higher rate atmosphere for a few years now, with little signs of it slowing down at present. There is a great risk to anyone remaining on the mortgage but not the deed and obviously trust tends to be at a low point at the end of most divorces. I will admit I’m not the biggest fan of quitclaim deeds for my clients in those types of situations.
Another option is to simply try and pay off the mortgage by negotiating other assets. But that is not so much as maintaining the mortgage, as eliminating it, and that can open up a whole other can of worms.
Conclusion
We remain in a unique situation when it comes to our mortgages. It is something I am encountering fresh as a divorce lawyer, despite my fifteen years of experience. At least to this extent. You should speak with your divorce lawyer, or obtain a divorce lawyer, to assist with these unique issues and the remainder of your case.
