WWYD: Regarding Refinance

[Deleted]

So I asked my H to move out. Assuming he actually does and we get divorced, I'll need to refinance the house in my name. Of course, interest rates suck right now. I just reached out to my Mortgage guy and he's running some numbers and we're going to chat within the next day or two. I wanted to also get opinions from you all.

I'm wondering if in my situation an ARM might be a better option than a traditional mortgage. 

I don't know how long I'll be in this house, but at least for the next 5 years until my kids graduate from high school. Once my kids go to college I might want to sell and move closer to family.

ARM vs Traditional could save me a couple hundred dollars a month which is kind of big deal since I'll only have one income.

Am I able to refinance out of an ARM if the rates drop again in a few years?

Any pros or cons I'm not thinking of?

PDQ: Current loan amount is $250K, estimated house value is $450K. I'll need to buy H out of his half of the equity, so my new mortgage will likely be between $330-$360K. 

[AdaraMarie]

When I got divorced I went through my mortgage company and did an assumption rather than a refinance. I "assumed" full responsibility and all the other terms of the loan stayed the same.
I did it to keep my interest rate. The process was kind of a hassle but it is something you could look into and find out if it is an option.

[wildrice]

Yes, you can refinance out of an ARM.

I think they all work this way, but make sure that there is a cap on how much the ARM can go up each year and up total over the life of the loan. You don't want to have to count on needing to refinance, so you wouldn't want to get into a loan where it could potentially keep going up and up for years. I don't know if loans like that even exist anymore, but just something to keep an eye on.

I had an ARM for my first home that I owned with my XH. It made me really nervous at first but it honestly was totally fine.

[sadlebred]

Yes, you can refinance. If you don't have a divorce attorney, you need one ASAP! (as in yesterday to protect yourself and your kids!). They can help you with the process. In my state, I needed a Quit Claim Deed where ex-H signed the house over to me legally. From there I had 6 months according to our agreement to refinance. I had it in process before the divorce was final and closed on the refi about 4 weeks after the final divorce decree. I went through a friend's brokerage, and she made it really easy.

[Deleted]

Jun 8, 2022 12:14:33 GMT -5 AdaraMarie said:

When I got divorced I went through my mortgage company and did an assumption rather than a refinance. I "assumed" full responsibility and all the other terms of the loan stayed the same.
I did it to keep my interest rate. The process was kind of a hassle but it is something you could look into and find out if it is an option.

I wish this was an option, it would save me a ton of money, but I need the cash from a refinance to buy him out of his portion of the equity.

[bee20]

You can do a cash-out refinance where you take some of the equity out as a second mortgage. They are harder to get approved for but worth asking. You can also make it part of your decree to have a longer timeline to get approved or buy him out (my friend has 24 months to refi the house over to her name and give him the cash. This could get tricky now with interest rates and house values changing, but she couldn't qualify as a SAHM and needed work history before she could refi).

ETA: And to answer your original question, yes, you can refinance out of it, but double check there are no early payoff penalties.  That screwed people over in 2008/09.

[winecat]

Most ARMs have a initial period where the rate can't change. You might be able to find one that's got a 5 year initial term so you can budget for that amount and not worry about changes. I had an ARM for a long time. It could reset once a year, couldn't reset more than a certain amount (maybe 1%?,) couldn't go above a certain percentage, and couldn't be beyond a certain percentage of the prime rate. I don't remember any of the details now but my interest rate didn't go above 6% and, when the economy was bad and interest rates were low, it was about 2%.

[AdaraMarie]

Jun 8, 2022 14:22:46 GMT -5 @sameoldstory said:

Jun 8, 2022 12:14:33 GMT -5 AdaraMarie said:

When I got divorced I went through my mortgage company and did an assumption rather than a refinance. I "assumed" full responsibility and all the other terms of the loan stayed the same.
I did it to keep my interest rate. The process was kind of a hassle but it is something you could look into and find out if it is an option.

I wish this was an option, it would save me a ton of money, but I need the cash from a refinance to buy him out of his portion of the equity.

I was able to do this by getting a HELOC to cover what I had to give him so I only have a higher rate loan on the smaller amount instead of the whole mortgage. Not sure if that is an option for you but maybe? I'm sure it is harder now with how much property values have shot up, mine was in 2015.

[RockNVoll]

We've had ARMs twice for a variety of reasons and both times we refinanced to a traditional term loan before we hit the adjustable period. It can work out really well and we saved a good amount of money while we had the ARMs until traditional rates dropped below the ARM rate.

Also, I'm sorry you're dealing with all this.

[mlkgls]

I don’t have any experience with or advice about an ARM, but something to keep in mind when refinancing is that cash out refinance rates are typically slightly higher than a regular refinance rate. I’m sorry, hopefully rates will go down if it comes down to it.

[ellipses84]

If it’s amiable, you could consider a divorce settlement with a longer timeline on it, even up to the youngest kid graduating high school. Like you sell and split the proceeds or buy him out at that point. I’ve heard of people doing that where they couldn’t afford the house on a single income but didn’t want to uproot the kids. That may not be possible if your STBX needs the money for housing though. I also understand wanting to take care of it and move forward quickly though.

[krystee]

When calculating his half, make sure you deduct realtor fees you’d have had to split if you had sold instead of buying him out. So if closing costs and realtor fees would be $30K, the equity to split is $170, not $200. That may be obvious, but I have a few friends who were going to agree to too much!

[steamboat185]

We had an ARM with our first condo and it saved us a lot of money. I think we had a 5 year option and sold the condo around 4 years. It did cause a bit of worry for me knowing the rate could change, but the money saved was worth it.

[sometimesrunner]

Jun 8, 2022 17:48:35 GMT -5 AdaraMarie said:

Jun 8, 2022 14:22:46 GMT -5 @sameoldstory said:

I wish this was an option, it would save me a ton of money, but I need the cash from a refinance to buy him out of his portion of the equity.

I was able to do this by getting a HELOC to cover what I had to give him so I only have a higher rate loan on the smaller amount instead of the whole mortgage. Not sure if that is an option for you but maybe? I'm sure it is harder now with how much property values have shot up, mine was in 2015.

I would try to go this route, as well. Get a HELOC for the amount you need to pay your H, and get your H off your current mortgage. 

[ellipses84]

You can also negotiate other assets like retirement, investment accounts, vehicles, etc. if you want to try to get the house split to be less. Like if he has way more retirement than you, he keeps it all and you keep the house. Or if you have lots in your retirement account, give him more of that in lieu of a higher house payout. One person may need a buyout depending on the numbers. Just factor in ALL assets minus potential expenses so it’s fair to both of you. Then re-focus your individual goals, like contributing more to retirement, rather than a higher mortgage. I’m sure it will all work out. Most of the women I know who got divorced had brief financial setbacks and were better off financially and mentally in the long run.