Divorce, refinancing gut check
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Anonymous
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I am going through a divorce. He has agreed to let me buy him out of the house, sfh colonial style 4br in a good exurb school district where most homes are exorbitantly high or smaller split levels...so I believe the value will go up.
The rates are obviously high. I locked at 7.125% for a 30 yr conventional. I was approved but haven't closed yet... My monthly mortgage payment will go up by 1500. I'll still have over 20% equity in the home. This would put monthly mortgage at 3600. My salary is 149k. For the same mortgage I would not be able to get as good of a house in as good of a neighborhood, plus I'd like to keep my kids in the same schools. Now I'm rethinking whether this is the best way to go. While my gross salary makes it all seem doable, I don't feel like I have an extra 1500 laying around per month??! (Finances are already split with stbxh) Should I consider doing an ARM instead? Should I sell instead? Should I just plan to do more side hustling and get more income? (Not completely undoable - I did contract work before) I don't know if this is even enough information to advise. I'm tired of thinking. |
Anonymous
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The answer to this question always depends on how you spend money. Maybe you have student loans or other debt that eats into your budget. Maybe your kids play expensive sports or maybe you don't have enough saved for college and you want room in your budget to make that happen. Or maybe your parents have already set aside money for their college, we have no idea. Maybe you eat out a lot or buy expensive clothes for your or the kids.
The only way to get to this answer is to analyze your budget and how much money, if any, you have left over and whether you want to devote extra money to the mortgage. By the time you do that, you don't really need any help from us. I will say off the top of my head it seems unlikely that this is a wise financial move for you given your gross income. |
Anonymous
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Op here. Thanks for taking the time to respond. I dont have other debt, do have a kid in a relatively affordable college, am not a huge spender but have 4 kids total.
I think I'm going to stall on the refi for a bit and reconsider...but it blows up a lot of other terms in the agreement. I am hoping perhaps the rates will come down in the next couple months, I'll be able to figure out some side income and this will become more feasible... |
Anonymous
| The answer to that is whether the money you're buying him out with are a good financial proposition for you. If you know you can never afford transactional costs and buy a similar sized property on your own keep the house. Definitely get an ARM 10/1 or 7/1 |
Anonymous
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What are your other options? Honestly, I agree that $1500/month is a lot to come up with. But what could you realistically get for less? I dont know what part of the DMV you are in, but where I am in NoVa $3600/month isn't going to pay rent for an apartment for you and 4 kids, let alone a nice house like yours sounds like.
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Anonymous
They won’t. They are likely to rise further if a little more slowly. Do NOT plan on falling rates because they won’t happen. |
Anonymous
+1 to this. With 4 kids, you won’t find housing cheaper than $3600. I would look for the side hustle but I would also run the numbers on the arm. I don’t believe we will be back to the 1980s 18% interest rates but we also won’t see 2% again for a loooooooooong time. In 7 years will you be able to downsize? Leave the area? If yes, and the arm is a significantly less payment hike then I would do the arm (unless closing costs are considerably higher). |
Anonymous
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12:21 and I will go back of the envelope here for you on numbers:
$149K gross less: $10K retirement less: $6K health/dental insurance less: $26.6K (payroll taxes at 20% all in excluding retirement and health insurance costs) less: $43.2K total mortgage payments You have $63.2K per year or $5.2K per month for everything else including your one child's college. That includes food, clothing, utilities, gas, car insurance and everything else. |
Anonymous
| Would he accept a payment plan/not force refi? |
Anonymous
| ^Edit: Meant to say only you know if you can meet your monthly expenses on that income. It should be doable, but I also don't have 4 older kids so I would think your grocery budget is at least $1K per month. This also assumes you won't be paying or receiving child support which may not be accurate. |
Anonymous
| Can u pull $ out when u refinance and stay with 20% equity? |
Anonymous
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What is your current interest rate?
When my ExDH and I separated he let me remain in the house and keep our low interest rate (left his name in the mortgage) and paid him cash directly for the difference (was $100 so doable). Neither one of us wanted to spend money on interest that could be used to support the kids/save for college. Maybe if you phrase it that way you wouldn’t have to refinance? There’s no “rule” that says you must refinance in divorce. |
Anonymous
| I’m the Pp from above, meant to say $100k. |
Anonymous
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Op here. Thank you all for weighing in again and your questions. Our income is about even and won't be getting much in the way of child support but he is going to pay split the daycare/health expenses. (2 youngest in inexpensive daycare, 1 will be entering kindergarten next year)
It's possible he would agree to a payment plan... I may need to resort to that. But I am loathe to stay financially beholden and tied to him for various reasons including that this becomes a point of coercion and control for him. This is why I'm in a rush to financially separate cleanly (not assume the loan or stay under the joint mortgage, etc). While legally we are doing this "amicably" it is very much not amicable emotionally or psychologically. Interesting idea to try to cash out more for myself... I could potentially do that. I just saw the appraisal and they oddly appraised the home super high. But then the monthly payments would go even higher... |
Anonymous
What is the value of the house? A very shitty rental 2br/2baths apartment is $2800 at a minimum in central DC. I don't think he would agree to you paying him mortgage: it increases his taxable income. And believe me you DON'T want a former spouse on the mortgage and title (he will be a fool to agree only be on the mortgage). I disagree that interest rates would not go down: it's no longe 1980s the Feds are much more efficiently regulating now. I did 7/1 ARM under 2% for my mortgage and will just prepay in 7 years if it goes up. But I make way more that you (350k gross) |