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When to Refinance?

Determine if it is best for you to refinance your mortgage loan before or after your divorce is final.

Refinance Before or After Divorce?

Before you make any major decisions regarding your finances when divorcing, you should speak with an attorney or other legal expert.  The information in this article is not intended to provide any concrete guidance, but rather to shed light on some of the implications that a divorce could mean on a mortgage.  It is written for those who do not wish to sell their home, but rather have one partner stay in the house.
Many couples want to know what options exist if one partner will remain in the home.  There are options for removing one spouse from the existing title, but rarely can one be removed from the actual mortgage without refinancing or selling the home.  This means that even though one borrower was removed from title (therefore, eliminating any ownership or claims on the property), it does not remove one’s liability on the mortgage.  If the spouse who is staying in the home fails to pay the monthly payments, this will affect your credit and future ability to obtain home financing.  All this being said, refinancing is recommended.
Should you refinance before or after a divorce?
This is the most common question asked by couples going through a divorce.  Unfortunatey, the right answer for one couple might not be the same for another.  It largely depends on several things, including how cooperative both spouses are and what the individual case is.
Refinancing before a divorce is oftentimes the best option.  This is for many reasons, especially since you may be able to consolidate debts and eliminate multiple payments.  Another is if you have equity built up in your home, you can cash out refinance and liquidate funds which will make dividing assets easier.  The third notable advantage of refinancing beforehand is to use money from the refinance to pay the costs of the divorce.
Something to consider is that a lot of couples encounter issues in the months and years following a divorce.  Often, one party will not meet their obligations set forth in the court decree regarding their personal requirements related to refinancing after a divorce is final.  This is especially the case if any future action is prolonged for years.  In some instances, the decree will place a requirement on what is to take place on a future sale or refinance of the home.  Therefore, you might want to refinance before finalizing your divorce.  There are some cases, however, where one may deem it more fitting to refinance after.
Refinancing your home loan after divorce
The one major “pro” of waiting to refinance until after your divorce is final is that there will be a court decree about what must take place.  If there are any debts or equity that need to be divided, the outcome of the court proceedings will dictate what is to take place.  Do keep in mind that just because there is a court order for a future refinance, it does not mean that banks are forced to provide financing.  If anything changes such as with credit or employment, it could affect the chances of you and/or your spouse securing financing on a new loan.
If you do not have a lot of assets and liabilities, and if you are both handling things amicably then you may wish to wait until after your divorce is final to refinance.  It would just be a matter of what is most convenient for you, after considering various possibilities and probabilities.
We hope this information has been useful.  We do NOT provide any guidance on laws related to divorce, we recommend you speak with your attorney for all legal questions.  If you would like to find out more about refinancing and what options exist specifically for you, contact us and speak with a home loan representative.

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