One of the biggest mistakes we see during a divorce is trying to protect a low interest rate at all costs.
At first, it sounds like the obvious choice. But let’s see what it really costs.
The Situation
In 2020, you purchased a home with a $350,000 mortgage on a 30-year fixed loan at 3.25%.
Monthly principal and interest payment: About $1,523
Today: Your home is worth $550,000. You are keeping the home. You must pay your former spouse $100,000 for their share of the equity.
Now you have two options.
Option 1: Keep the Low Interest Rate
To avoid refinancing, you withdraw $100,000 from your retirement account.
Your 401(k) originally had $300,000 invested and has been averaging 6% annual growth.
If you leave the money invested, after five years your retirement account would grow to approximately:
$401,000
But after taking out $100,000, you only have $200,000 invested.
After five years, that account grows to only about: $268,000
The Real Cost Five years later…
Retirement account if you leave it alone: About $401,000
Retirement account after withdrawing $100,000: About $268,000
Difference: Approximately $133,000.
Most people focus on the fact that they “only” took out $100,000.
What they don’t see is that five years later, their retirement account is over $130,000 smaller than it could have been.
That’s the true cost of protecting that low mortgage rate.
Option 2: Refinance
Instead, let’s refinance.
Assume your current mortgage balance is about $304,000 and you borrow an additional $100,000 to buy out your former spouse.
New loan: About $404,000
Interest rate: 6.5%
New monthly principal and interest payment: About $2,556
That’s roughly $1,033 more per month than your old payment.
Yes, the payment is higher.
But your retirement account keeps growing.
The Lesson: Interest rates matter. But they aren’t the only number that matters.
We’ve seen many people make decisions based only on keeping a 3% mortgage, without realizing they may be giving up well over $100,000 in retirement savings over the next several years.
Every divorce is different.
Before you cash out your retirement to protect a low interest rate, make sure you’ve compared the true long-term cost of both options.
Sometimes the loan with the higher interest rate leaves you with more wealth in the long run.
About the Author
Dave Jamison is a divorce mortgage strategist and co-owner of Rainbow Mortgage Inc., an independent mortgage brokerage licensed in Minnesota, Florida, and North Dakota. With more than 26 years in residential lending—including 13 years as an underwriter for Fortune 500 mortgage institutions—Dave brings deep, practical expertise to complex divorce-related real estate matters.
What sets Dave apart is his underwriting foundation. Rather than approaching cases from a sales perspective, he evaluates them through the lens of how loans are actually approved—income calculations, debt ratios, reserve requirements, and documentation standards. This allows him to assess feasibility early in the divorce process, helping prevent refinance provisions that later fail and ensuring agreements align with real-world lending guidelines.
Dave and his wife, Gale, founded Rainbow Mortgage Inc. in 1999, initially serving borrowers with complex financial situations. In 2004, he began specializing in divorce mortgage planning, applying his expertise to support attorneys, mediators, and financial neutrals. Since then, he has spent more than two decades helping collaborative teams structure realistic refinance timelines, evaluate buyout options, and avoid post-decree mortgage breakdowns.
He is particularly skilled in analyzing self-employed income, support income, and multi-property scenarios—areas where legal and financial assumptions often diverge from underwriting standards. Known for his calm, direct, and non-adversarial approach, Dave provides clear, objective guidance that supports durable agreements.
David Jamison
Rainbow Mortgage, Inc.
Ph: 952-405-2090
www.RainbowMortgageInc.com
