Should I Keep The Mortgage In Divorce?

A wide range of memories and emotions are typically attached to the marital home. It is often the largest marital asset and, if mortgaged, often is encumbered with the largest marital liability. The current residential real estate landscape has made it difficult to find creative ways to maintain the marital home. Simply assuming the house and mortgage are no longer straightforward options. While mortgage interest rates plummeted to unprecedented lows in 2020, many home values soared, resulting in substantial appreciation. For divorcing homeowners who need to buy out a portion of the home equity from their spouse, this can create a financial dilemma.

In addition to the daunting task of splitting marital home equity, couples may also face substantially higher mortgage interest rates – in some instances, more than double their original rate. This combination risks a much higher mortgage payment, an extremely challenging situation for a family whose income will now be split among two households. For example, if a couple has a $300,000 mortgage with a 30-year fixed rate of 3.25%, their principal and interest payment is $1,306. If they divorce and one spouse needs to refinance at 7.25%, the principal and interest payment jumps to $2,047 – a $741 increase, which is 57%!