Do I Have to Refinance After a Divorce?

September 14, 2017


When you take out a mortgage to purchase a property with your partner or spouse, you both are responsible for paying down the loan if both of your names are on the loan agreement. But, if you decide to split up personally, your financial life is going to have to be split up as well. Does this mean you’ll have to refinance your home loan to keep your property?

Divorce and Your Mortgage

In Australia, there is no simple solution for your mortgage when you get divorced. You can’t simply take ownership for the other party’s involvement in the debt. Nor can someone be removed from the agreement, even if that is what both of you are willing to do. This means you have two options to deal with your mortgage:

  1. You can sell the home together and share the profits. This can be difficult if you and your ex are not at a point where you can work well together. Selling a property can take time and it involves a lot of decision making along the way. You’ll also have to come to a reasonable agreement as to how to share the profits from the sale.
  2. Alternatively, one ex-spouse can buy the other’s property share. Whoever does this will have to take out a new loan to buy out their ex-partner. The only way to do this is to refinance.

Essential Factors if Refinancing after Separating

You may be either the one who sells your share or who buys out your partner. Either way, ensure the person who sells is removed from the property title. When either adding someone to your loan or refinancing to remove you or your ex from the mortgage, the property title has to be handled separately through your state, not your lender.

If you are going to buy your ex-spouse’s share, your bank will expect you to take out a new loan to pay your ex his or her share and to continue paying off the original mortgage. This means you can also choose to switch to a new lender if you aren’t happy with your current bank or if you find a better loan product from another lender. It also means you’ll have to pay refinancing fees and go through the process of applying for a new loan.

If you weren’t prepared to refinance, which may be the case as divorce is not always predictable, you may have trouble qualifying for a competitive loan when you refinance. For example, if your credit isn’t good or you just recently quit your job to start your own business, you may not be able to get the loan you want.

Be sure to discuss your options with a mortgage specialist or financial advisor before committing to buying your partner’s share of the property.

How to Navigate Your Mortgage During a Break-Up

Divorce is generally a challenging time. To help things go as smoothly as possible with your mortgage, you can do the following:

  • Don’t agree to anything until you’ve had both professional legal and financial advice, so you know you are always acting in your best interest.
  • Try to keep a positive line of communication open to take care of all the transitional paperwork as quickly as possible.
  • Be ready for surprise costs. Divorce can be costly. Save what you can and try to reduce other expenses, at least until the process is over.

You can’t avoid all associated expenses or the surprises, so do your best to be prepared. Especially if you may have to refinance, make sure you are managing your money well and repaying your current loan on time. You also may want to begin researching your home loan options early, so you know what loan you want to apply for when it is time to refinance.

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