Divorce is a challenging process, and one of the most complex issues can be dealing with the marital home. When one spouse wants to keep the home, there are two primary financial strategies to consider: mortgage assumption and cash-out refinancing. Both options have their advantages and disadvantages, and understanding these can help you make an informed decision.

Mortgage assumption allows one spouse to take over the existing mortgage on the marital home. Essentially, this means that the remaining spouse will assume responsibility for the mortgage payments without needing to take out a new loan.

1. Lower Costs: Assumption can be less expensive than refinancing since it typically involves fewer fees and closing costs.
2. Existing Terms: The assuming spouse keeps the current interest rate and terms of the mortgage, which can be beneficial if the rate is lower than current market rates.
3. Simplicity: The process can be simpler and faster compared to refinancing.

1. Qualification Requirements: The assuming spouse must qualify for the mortgage on their own, which can be challenging if their income or credit score is insufficient.
2. Release of Liability: The other spouse needs to be officially released from the mortgage liability, which isn’t automatic and can complicate matters.
3. Lender Approval: Not all mortgages are assumable, and the lender must approve the assumption.

A cash-out refinance involves taking out a new mortgage that is larger than the existing mortgage. The difference between the new mortgage and the old mortgage is given to the spouse who is moving out as a lump sum.

1. Access to Equity: It allows the remaining spouse to tap into the home’s equity, providing the departing spouse with their share of the equity in cash.
2. One Loan: Consolidates the mortgage into a new loan, which can sometimes offer better terms or rates.
3. Sole Responsibility: The new loan is in the name of the spouse who will keep the house, removing the other spouse from the mortgage entirely.

1. Higher Costs: This option can be more expensive due to higher closing costs and fees associated with taking out a new mortgage.
2. Higher Interest Rates: If current market rates are higher than the existing mortgage rate, the new loan could be more costly over time.
3. Qualification Requirements: The remaining spouse must qualify for the new loan based on their income, credit score, and debt-to-income ratio.

Choosing between mortgage assumption and cash-out refinancing depends on several factors, including:

• Current Interest Rates: Compare the current mortgage rate with the rates available for refinancing.
• Qualification: Assess whether the remaining spouse can qualify for either option based on their financial situation.
• Equity and Financial Needs: Consider how much equity is in the home and whether the departing spouse needs a lump sum payment.
• Lender Policies: Check if the current lender allows mortgage assumptions and what their requirements are.