Everyone has heard the old saw about what happens when you assume. But, in divorce, an assumption can be a great thing if we’re talking about a mortgage.
Divorce brings change. Many of those changes are financial. Perhaps the biggest financial change in today’s world is a change in the cost of housing for one or both spouses after separation.
One or both spouses in divorce must find new housing. In today’s real estate market in the Triangle (and other metropolitan areas in North Carolina) and with current interest rates, many divorcing couples face the daunting prospect of losing a mortgage interest rate that begins with a 2 and taking one that begins with a 6 or 7.
Many couples obtained historically low mortgage interest rates during the pandemic. Those rates are sometimes one-third of the current interest rates. These clients have enjoyed extremely low housing payments relative to the cost of their homes for years.
In divorce, only one person can keep the marital home, and sometimes neither spouse can afford to keep it. So, divorce typically involves either selling the marital home or having one spouse refinance the mortgage to remove the other from liability on the loan.
The problem is that both of these options mean that the historically low interest rate goes away with the divorce. And that is a big financial hit for both parties since they will each pay significantly more for comparable housing, whether they buy or rent.
Enter the loan assumption. Assuming a loan means that one party takes over the mortgage from the other and, crucially, keeps the interest rate. That saves at least one spouse a lot of money. And when one spouse has more money, there is more to offset the cost of the divorce, support the other spouse and children, or replenish savings over time.
Not all loans are assumable, but it is always worth finding out. You can do that by reading your mortgage documents and contacting your lender. You may get the run around at first but be persistent and lean into that hold music.
Assuming the mortgage will not make sense in every case. But, for those divorcing couples with a low interest rate an assumption can preserve financial resources that make the future more stable for everyone. So, as it turns out the old saw is not always accurate: In some cases, assuming just makes a better future for everyone.
