Loan Assumptions and Divorce: Keeping Yesterday’s Low Rates When You Keep the House
When couples bought homes during the low-interest-rate years, many locked in mortgages at 3% or less. Fast forward to divorce — and suddenly, the spouse who wants to keep the home faces an impossible choice: refinance at today’s 7% rates or sell the house altogether. But here’s what most people — and even many attorneys and lenders — don’t realize: you may not have to refinance at all. In a divorce, the spouse awarded the home can often assume the existing mortgage and keep the original loan terms, thanks to federal law and Fannie Mae/Freddie Mac servicing rules. It’s called a loan assumption, and it’s one of the most misunderstood — yet powerful — tools in divorce real estate. What Is a Loan Assumption? A loan assumption means one spouse takes over responsibility for an existing mortgage, without changing the interest rate, balance, or terms. In other words, you “step into” the loan rather than starting over. The payments, escrow, and account history stay the same — but th...