In case you haven’t heard, mortgage rates are really low right now, which may or may not have you thinking about a refinance. I get it; in fact, my husband and I just refinanced ourselves, which is what leads me to our discussion today. Well, that, and a recent consultation I had.
In my consultation, the woman asked whether she should refinance now or later, with a specific goal of the refinance being that she and her husband wanted to take money out to cover their youngest daughter’s college tuition for 2020-2021. When it comes to refinance, there are a couple of things to be aware of, and I wanted to address these questions here.
Mortgage rates are really, really good right now, and you may want to take advantage of that. But you may have more questions, and that’s good.
It’s almost never a bad idea to talk to a mortgage broker about your options, current market rates, and any related concerns you may have.
Let’s unpack this, though.
What are my options if I want to take cash out?
My mortgage broker told me yesterday that very few people refinance like we did – just the existing mortgage balance. Most people refinance to take some cash out of the mortgage to do some things on that ever-growing “to-do” list that most of us have.
Like the woman I spoke to awhile back who wanted to take money out for her child’s college tuition, this is a common concern.
Still, a refi is a bit of a tricky contention if you’re planning a divorce. I think it’s a good idea to think about what you plan to do with the house when all is said and done. Will one of you keep it? Will you sell it?
If one of you keeps it, you’ll need to refi to get your spouse’s name off the mortgage. If you’ve recently refinanced, you might not be able to again for a certain period of time – definitely a question to ask. If your spouse will want to keep it, leaving your name on the mortgage until he can qualify to refinance again is risky. For one thing, it adds to the debt on your name if you go to purchase something of your own later. For another, if he doesn’t pay, for whatever reason, it leaves you on the hook. Not attractive, right?
If you want to sell it, then closing costs may make this a less profitable contention. When you refinance, if you can’t pay the closing costs outright, they roll over into the existing mortgage balance. Either way, though, it typically takes a period of time to pay for your refinance, even if you get a way lower interest rate, on account of the closing costs.
If you want to take cash out, though, you may want to talk with your mortgage broker about options. That cash can provide you with a way to do things – like make necessary improvements to the home (if you’re going to sell it or if you’re planning on keeping it), or to do things like my client suggested to pay for her daughter’s college tuition – that might be impossible otherwise. If divorce is imminent, it might be hard, but as part of a longer term strategy, it might just work.
What about refinancing for college costs?
College costs, too, are tricky. In Virginia, the court isn’t authorized to make one party pay or even for both parties to share costs, unless the parties have already agreed to do this as part of their separation agreement. There’s no law in Virginia requiring it, so it’s just not something that can be done.
In this case, it might be smart to refi to do this – while dad is agreeable. He may not be so agreeable later on, when we’re trying to reach an agreement, if what we’re asking requires him to obligate himself to an additional monthly amount. More cynically said, I think dads are resistant to agreeing to pay more than they HAVE to, when it comes down to it. There’s also a possibility that opposing counsel would advise him not to agree to pay more; in fact, it’s a recommendation I’ve made to clients many times. You never know how things will work out financially later on down the line, so you may find that something you’ve agreed to is more or less workable in 6 months than it is now. You can always pay more, but it’s hard (or impossible) to pay less than you’ve already agreed to pay. But if you take the money out now and pre pay, not only is it possible that you may get a better rate through the college, but it’s also possible that you could get something paid for that he might not agree to pay for later.
What about refinancing to take money for home improvements?
This may be necessary, if you don’t have the cash on hand! Your house will need to be prepared to be sold when you separate (or refi so one of you can take ownership – more on that later), so chances are you’ll need some money on hand. You can make some improvements now, too, to make things more marketable, but finding money to make these improvements (or agreeing on how, and to what degree, each party will pay their share) is difficult once you’ve already separated.
If you’re planning on keeping the house, too, this might be a way to get things done that will make it more financially feasible for you to stay in the house. Once you separate, your husband definitely won’t agree to do these things for you, but he may agree now… Like I say, as part of a long game.
A refi is complicated, and comes with some strings attached. Between paying closing costs and the lack of ability to refinance again in the short term if you separate and want to keep the house, you’ll want to carefully consider options and weigh your choices before you make any decisions. Rates are good now, which is a part of the consideration, but it’s not the entire sum of your decision.
For more information or to talk this over with a licensed and experienced divorce and custody attorney, give our office a call at 757-425-5200.