Divorce & Mortgages: Can I Keep Our 3% Interest Rate?
For many couples separating in today’s housing market, the biggest financial tragedy isn’t the legal bill—it’s losing the mortgage rate.
If you bought or refinanced your home between 2020 and 2021, you likely have an interest rate sitting comfortably near 3% (or perhaps even lower). Today, current mortgage rates are significantly higher.
This creates a “Golden Handcuff” scenario. You and your spouse agree that one of you should keep the house—perhaps for the stability of the children, or simply because it makes financial sense. However, neither of you can afford to “buy the other out” if it means swapping a managed $2,000 monthly payment for a crushing $4,000 payment on the exact same house.
The standard advice you will hear from most traditional divorce attorneys is rigid: “You must refinance to remove your spouse’s name.”
But in an uncontested divorce or mediation setting, where we have the flexibility to be creative, there is a potential alternative that banks rarely advertise: The Mortgage Assumption.
Here is what you need to know about keeping your low interest rate, the dangers of “shortcuts” like quitclaim deeds, and how mediation can help you save your home.
The Problem: Why Refinancing is a Wealth Killer
To understand why “Assumption” is so valuable, you first have to understand why the traditional route—refinancing—is currently so painful.
In a typical divorce where one spouse keeps the home, the “out-spouse” (the one moving away) wants their name off the mortgage. They don’t want to be liable for a debt on a house they don’t live in, and they can’t qualify for a new mortgage for themselves while the old one is still on their credit report.
Traditionally, the “in-spouse” (the one staying) takes out a brand-new loan to pay off the old one. This is a refinance.
The problem is the math. Let’s say you have a $400,000 mortgage balance at 3%. Your principal and interest payment is roughly $1,686/month. If you refinance that same $400,000 balance at today’s rates (let’s hypothetically say 7%), your new payment skyrockets to $2,661/month.
That is nearly $1,000 extra every single month for the next 30 years, just for the privilege of removing a name. Over the life of the loan, that simple administrative change could cost you over $350,000 in extra interest.
For many divorcing couples, that $1,000 difference is the breaking point. It effectively means the house must be sold because the single income of the remaining spouse cannot support the new payment.
The Solution: What is a Loan Assumption?
A mortgage assumption is a process where the lender allows one spouse to take over the existing loan, exactly as it is.
When you assume a mortgage, you are not getting a new loan. You are stepping into the shoes of the original borrowers. You keep the same balance, the same remaining term, and crucially, you keep the same 3% interest rate.
This is the only way to remove spouse from mortgage without refinancing.
If successful, the lender modifies the loan documents to remove the departing spouse’s name, releasing them from liability. The remaining spouse keeps the affordable payment, and the house stays in the family.
Is My Mortgage Assumable?
Not all mortgages are created equal. Whether you can do this depends entirely on the type of loan you have:
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FHA and VA Loans: These are almost always assumable. It is a feature built into the government backing of the loan. If you have an FHA or VA loan, and the spouse keeping the house qualifies on their own income, the bank must generally allow the assumption.
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Conventional Loans: This is trickier. Most conventional loans (Fannie Mae/Freddie Mac) contain a “Due on Sale” clause. This usually prevents assumption. However, there is an exception often made for divorce. If you can prove that the remaining spouse has the income to support the debt, some servicers will allow a “qualified assumption” to avoid the risk of default.
It is not an automatic “yes,” and it requires navigating a bureaucratic maze with your bank’s loss mitigation department. But given the thousands of dollars at stake, it is absolutely worth the effort.
The Dangerous Shortcut: The Quitclaim Deed Myth
If you take nothing else away from this article, let it be this warning regarding divorce quitclaim deed vs mortgage liability.
In many “Do-It-Yourself” divorces, couples try to solve the house problem simply by signing a Quitclaim Deed. The departing spouse signs the deed, transferring ownership to the remaining spouse. They think, “Great, I signed the house over to her, so I don’t have to pay for it anymore.”
This is a massive error.
A Quitclaim Deed only transfers ownership (Title). It does not affect debt (Mortgage).
The bank is not a party to your divorce decree. The bank does not care that you signed a deed or that a judge said your ex is responsible for the payments. As far as the bank is concerned, you both signed the promissory note, and you are both 100% liable.
If you sign a quitclaim deed but don’t remove your name from the mortgage (via assumption or refinance):
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Your Credit is at Risk: If your ex misses a payment, your credit score tanks.
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You Can’t Buy a New Home: The debt still shows up on your Debt-to-Income ratio, likely preventing you from getting a loan for your own apartment or house.
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You Have No Asset: You have given away your ownership rights (the deed) but kept the debt. You have literally the worst of both worlds.
Never sign a Quitclaim Deed until you have a confirmed plan in place to handle the mortgage.
How Mediation Enables the “Assumption” Strategy
You might be wondering, “If loan assumptions are so great, why doesn’t everyone do them?”
The answer is that they take time (often 3 to 6 months) and they require cooperation.
In a litigated, contested divorce, judges prefer “clean breaks.” If there is an argument about the house, a judge is unlikely to order the couple to wait 6 months to see if a bank approves an assumption. The judge will simply order the house sold so the assets can be split immediately.
This is where Uncontested Divorce and Mediation shine.
In mediation, we control the timeline and the terms. We can build a creative agreement that says:
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“Husband will keep the home and attempt to assume the mortgage.”
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“Wife agrees to remain on the mortgage for 6 months to allow this process to happen.”
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“To compensate Wife for her equity share (since Husband can’t pull cash out of the house without refinancing), Husband will trade his share of the 401(k) or Savings Account.”
This trading of assets—swapping house equity for retirement equity—is a classic mediation strategy. It allows the remaining spouse to keep the house and the low mortgage rate, while the departing spouse gets their fair share of the value in liquid cash or retirement funds.
Your 3% mortgage rate is an asset. In fact, over the life of your loan, that low rate might be worth just as much as the equity in the house itself. Don’t give it up without a fight.
If you are facing divorce and worried about losing your home to high interest rates, litigation is likely not the answer. You need a process that allows for patience, creativity, and financial strategy.
Do you want to explore if a Mortgage Assumption is right for your divorce settlement? Contact us today to schedule a mediation consultation. Let’s see if we can keep your family in your home without breaking the bank.
