Refinancing the Home During Divorce or Separation
Divorce is unfortunately associated to another big ‘D’ word; debt. It’s common for couples going through a divorce to generate debt. Whether that’s splitting assets, lawyer fees or simply old debt incurred while married. As couples separate and work to reestablish themselves, they will be doing a lot of financial juggling and refinancing might be necessary to split the assets or rebalance the books.
In the most ideal circumstances, refinancing should save your client money month over month by paying off high interest debts or prove to be the most cost effective way to access the funds that they need.
Sometimes refinancing makes sense and sometimes it doesn’t. Here’s a few things to consider when helping your clients.
- How much does it save the client at the end of the day?
- Do they need to remove someone off a title like a parent or ex-spouse?
- Is there a penalty involved?
- How much are the legal fees / lender processing fees / appraisal fees?
As a trusted mortgage broker, this is a chance for you to help someone rebuild after a personal loss. So while these situations aren’t fun to deal with, you can make a difference in someone’s life by helping them navigate through these difficult times.
Below are two examples of when it makes sense to refinance after a divorce
Beacon Score: 569
Lisa has reached out to you, her trusted mortgage broker, to talk about refinancing options. Lisa recently went through a divorce that led to her to miss payments on some high interest debt which has negatively impacted her credit score. She wants to refinance in order to settle these arrears and hopefully increase her credit score. She has a stable income and employment with support documents.
What she wants to do is to refinance her mortgage in order to pay all of her debts in full so she can start fresh. After all costs considered Lisa will be saving a few hundred dollars a month compared to her current situation and this makes sense for you to suggest a refinance.
Beacon Score: 606
Phillip has gone through a divorce that bruised his credit. He decided it was time to look at his options with you, his trusted mortgage broker. Right now, Phillip is involved in a consumer proposal which will legally give him immediate protection from debt collectors and enable him to arrange for partial repayment of the unsecure debt he has. As his mortgage broker, you know that he has provable long term income from employment. Phillip also has some tradelines positively reporting to the credit bureau to offset the recent debt issues.
Due to all of these factors, Phillip is a great candidate for debt refinancing. Including the cost considerations of a refinance such as legal fees, appraisals etc. Phillip will still save a couple hundred dollars a month that he can put towards his other debt repayments. Phillip is also a great candidate for a shorter term mortgage as his rate may be a bit higher due to his circumstance. But with prudent debt repayment, he could be ready for a lower rate mortgage in a few years. You suggest this to Phillip and he feels relieved that you have his best interest in mind.
Takeaway: is a mortgage refinance during separation the right choice?
There are costs associated to refinancing and sometimes it makes sense and other times the math just simply doesn’t work out. Our business development managers and underwriters are deal packaging experts and are ready to have a discussion with you about your next refinance and get your deals done.
If you have any questions about refinancing for a client, contact your expert BDM now.