The New Battle in Divorce: Who Gets Custody of the Low Mortgage Rate?

Published by | January 23, 2024

When a marriage splits up, the question of who walks away with the lower mortgage rate sparks far more than casual jealousy

When Ann Shea, 44, was finalizing a divorce last year, she knew she wanted to keep the suburban Chicago home where she was raising her school-age kids. But it was equally important for her to hold onto her relatively low mortgage rate.

She had purchased the home in the summer of 2012, and had refinanced to a rate of 2.8% during the pandemic. She wanted to keep the house to provide stability for her kids, who were still young and attending school nearby.

But to get the mortgage and the title of the home in her name only would have required refinancing, which would have bumped up her mortgage rate to the 6% range, where rates were averaging in mid-April when her divorce was finalized. A back-of-the-envelope math estimate would suggest that her monthly mortgage payment could have ballooned by 33%.

“The divorce was so expensive, and to think about adding on that cost would have been terrible,” Shea, a compliance attorney, told MarketWatch.

Moving to such a comparatively high mortgage rate after 11 years of paying off the 2.8% loan would have felt to Shea like she had “lost all that ground,” she added.

Shea’s plight is becoming more common. As mortgage rates soared from historic lows during the pandemic to two-decade highs at the end of 2023, homeowners with rates under 3% became the envy of their friends and families. But when a marriage splits up, the question of who walks away with the lower mortgage rate sparks far more than casual jealousy.

It’s increasingly a source of tension at the divorce negotiating table, Alla Roytberg, a New York City-based family and matrimonial law attorney and a mediator, told MarketWatch.

“In the past, when rates were low, it was an easy answer, because somebody could refinance and get a 3.5% rate,” Royberg, who has been in matrimonial law for the last three decades, said. “And now, they have this 3% rate, and if they refinance, they’re going to get 7% or 6%—and that makes it unaffordable.”

Historically, a couple who is going through a divorce will either work out an arrangement to refinance the home and put it in one spouse’s name, or if the divorce is acrimonious, they can be forced by a court to sell the home and divide the proceeds, Erin Levine, co-founder of Hello Divorce, a company based in Alameda, Calif., that sells online divorce services, told MarketWatch.

Those traditional methods are still an option separating partners pursue today. But the large gap between prevailing mortgage rates and the rates on divorcing couples’ homes, coupled with a more expensive housing market, has prompted some to turn to unconventional strategies to divide real-estate assets. 

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