The cost of splitting up
Dividing marital home equity can feel overwhelming, especially with today’s higher mortgage rates. In 2020, the average 30-year fixed mortgage rate was approximately 3.10%. Today, that rate has climbed significantly to 6.74%, according to Zillow.
For example: a couple with a $400,000 mortgage at a 30-year fixed rate of 3.10% in 2020 pays $1,709 in principal and interest each month. If one spouse needs to refinance at the current average rate of 6.74% that payment jumps to $2,592 — a 52% increase.
To make matters worse, most couples sign their mortgage together, making both parties jointly responsible for the debt. Donna Cates, a Certified Divorce Financial Analyst, explained that in an email to Forbes, adding that if the spouse staying in the house fails to make a payment, the other is legally obligated to cover the full amount, regardless of their relationship status.
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Learn MoreIs there a way around it?
Divorce doesn’t have to mean giving up on homeownership, but navigating the financial fallout can be tricky. Selling the marital home and splitting the proceeds is often the simplest solution. However, it means losing the low-interest mortgage you may have locked in years ago.
Buying a new home after divorce can feel like an uphill climb, especially when transitioning from two incomes to one. To make it work, start by consulting a financial advisor. They can help you:
- Develop a realistic post-divorce budget.
- Rebuild your credit independently from your ex.
- Explore options to strengthen your financial situation.
An advisor can also help you consider alternatives like downsizing, renting or even shared living arrangements to buy time and regain stability.
Divorce is undoubtedly a major life change, but with a solid plan, it doesn’t have to derail your path to homeownership or whatever financial goals you may have.
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