In January of 2022, mortgage interest rates began their sharpest increase since the early 1980s. While this has not only increased the monthly cost of a mortgage payment for the same loan amount, the severity of the increase has had a lock-in effect for people with current interest rates in the 2% and 3% range who are reluctant to move if they don’t have to.
The increase in rates has pushed much of the buyer demand to the sidelines, but since very few have opted to sell, the housing market has remained surprisingly resilient. Prior to the increase in rates, there was a housing supply shortage creating an extreme seller’s market where buyers frequently paid well over list price. While home appreciation has slowed, values in many areas have continued to hold up because inventory remains limited.
In the divorce world, higher mortgage rates have made it more difficult to “uncouple” the mortgage. Refinancing to remove an ex-spouse’s name and pull out equity to pay a marital settlement has become much more costly than it was just a few years ago. Navigating these nuances has made it difficult for attorneys, mediators, and divorcing clients.
Cooperation Matters More Than Ever
High conflict between spouses makes divorce more difficult and more expensive. The same is true when trying to separate ownership and responsibility for the marital home.
Fortunately, there are many situations where aligning incentives can overcome conflict. For example, if the exiting spouse wants their marital settlement from the home’s equity, they may be willing to sign a Quit Claim Deed relinquishing their title rights in exchange for receiving those proceeds.
Another example occurs when an exiting spouse will be receiving spousal maintenance. Leaving their name on the existing low-interest-rate mortgage may allow the retaining spouse to keep a substantially lower payment than would be possible through refinancing.
Even when incentives are not perfectly aligned, creative solutions can create a win-win outcome. One example is using a second mortgage to fund a buyout rather than replacing an existing first mortgage with a much higher-rate refinance.
Four Common Mortgage Options During Divorce
When one spouse wishes to keep the home and equity must be divided, there are generally four primary options to consider.
Option 1: Remove the Exiting Spouse Through a Qualifying Name Delete Assumption (QNDA) and Obtain a Second Mortgage
A Qualifying Name Delete Assumption allows one borrower to be removed from an existing mortgage while keeping the original loan terms intact.
This option is commonly used when the exiting spouse wants their name removed from the mortgage and the loan servicer allows assumptions.
However, before relying on this option, several questions should be answered:
- Will the retaining spouse qualify under the servicer’s guidelines?
- What debt-to-income ratio does the servicer allow?
- Will the borrower qualify for the second mortgage needed to fund the buyout?
- How long will the QNDA process take?
Unlike a refinance, a QNDA often takes one to four months and processing timelines can vary significantly among servicers.
Option 2: Leave the Exiting Spouse on the Existing Mortgage and Obtain a Second Mortgage
When a QNDA is not available—or even when it is—leaving the exiting spouse on the current mortgage can be an effective solution.
This option preserves the low interest rate on the existing first mortgage while providing access to equity through a second mortgage.
The three most common concerns from the exiting spouse are:
Concern #1: I Need My Name Removed So I Can Purchase Another Home
In many cases, a properly drafted divorce decree can address this concern. Mortgage debt can often be excluded from debt-to-income calculations when the decree clearly assigns responsibility for the payment and includes hold harmless language.
Concern #2: I’m Worried Missed Payments Will Damage My Credit
If the mortgage payment is missed, both parties’ credit can be impacted. However, attorneys can build safeguards into the agreement such as:
- Online access to verify payments
- Monthly payment confirmations
- Notification requirements if a payment is late
Trust and cooperation remain important, but practical protections can reduce risk.
Concern #3: How Long Will My Name Stay on the Mortgage?
Many parties agree that the name will remain on the loan until a future event occurs. Common examples include:
- One to two years passing
- Interest rates reaching a specified level
- The retaining spouse qualifying for a refinance
This flexibility often creates a workable compromise.
Option 3: Refinance and Pay the Marital Settlement
When the exiting spouse requires their name removed and a QNDA is unavailable, refinancing may still be the best option.
Although today’s rates are higher, refinancing offers several advantages:
- Removes the exiting spouse from the mortgage
- Provides funds for the marital settlement
- Allows higher debt-to-income ratios than some assumption programs
- Removes uncertainty regarding future qualification
While the monthly payment may increase, the simplicity and certainty of the transaction often outweigh the disadvantages.
Option 4: Sell the Home
Sometimes neither spouse can—or wants to—keep the property.
In those situations, selling the home and dividing the proceeds according to the divorce decree may be the most practical path forward.
This option can also be beneficial when one spouse plans to purchase a new home while the other plans to rent. With proper drafting, attorneys can structure the settlement so the purchasing spouse receives their share of proceeds before closing on the sale, allowing them to qualify for their next home without waiting for the transaction to be completed.
Where Are Mortgage Rates Headed?
Forecasting rates is always difficult.
The Federal Reserve raised rates aggressively to combat inflation, and while inflation has moderated from its peak, economic conditions continue to evolve. Generally speaking, if inflation continues to decline and economic growth slows, mortgage rates may gradually move lower.
The timing and magnitude of future rate reductions remain uncertain, but many economists expect rates to eventually trend downward from current levels.
What Does This Mean for the Housing Market?
The housing market remains heavily influenced by inventory shortages.
Even though higher rates reduced buyer demand, many homeowners with mortgages in the 2% and 3% range have chosen not to sell. This has limited available inventory and helped support home values.
If rates decline meaningfully, buyer demand will likely increase. The question becomes whether enough homeowners decide to sell to offset that demand.
For divorcing clients, this environment presents an interesting opportunity. Purchasing a home while rates are elevated may mean less competition and greater negotiating power. If rates eventually decline, refinancing later may become an option.
Final Thoughts
Higher mortgage rates have undoubtedly complicated divorce-related housing decisions. However, they have also created opportunities for more creative settlement structures.
Whether through a QNDA, a second mortgage, a refinance, or a sale, there are often more options available than clients initially realize.
Understanding these alternatives early in the divorce process allows attorneys, mediators, and clients to make informed decisions that balance financial realities with long-term goals.
Every divorce is unique, and mortgage strategy should be evaluated as carefully as any other aspect of the settlement process.
To learn more or discuss a specific case, contact Brett Leshchinsky.
About the Author
Brett Leschinsky is a Divorce Mortgage Specialist with Resource Mortgage. For over 15 years he has helped clients, attorneys, and mediators navigate the complex intersection of mortgage financing and divorce. Brett specializes in analyzing settlement options involving the marital home, spousal maintenance income, equity buyouts, refinancing strategies, and mortgage qualification issues before, during, and after divorce. He works closely with family law professionals to help clients make informed housing and financial decisions throughout the divorce process.
Brett Leschinsky
Sr Mortgage Consultant, Divorce Mortgage Specialist
Resource Mortgage
612.590.7896 | brett@mortgageforest.com
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