Splitting From Wife, Want Cash From Home
Dear Dr. Don,
I'm going through a divorce and need to cash out the equity in my home. The house is paid off. I just had it appraised for $191,000. My wife is staying in the house. What is the best way to get the cash out? Do a cash-out refinancing, or take out a home equity line or loan? By the way, I want what is best for both my wife and me, even though we are splitting up.
Thank you,
-Brian Bachelor
Dear Brian,
Of course, I'm not part of your actual divorce discussion. But the best way to extract the cash is to sell the home. You can then split the proceeds as called for by the divorce decree and get on with your lives.
Compare Mortgage Rates in Your Area
When you leverage your home's value through a home equity line, a home equity loan or a cash-out first mortgage, you'll also have to repay the loan. Who is entitled to the equity that you're plowing back into the property?
If I were divorcing my wife (which I'm not), I probably wouldn't want a new mortgage on a home I'm set to leave. But, let's say you take out a 15-year mortgage for $150,000 and that your ex-wife stays in the home over the following life of the mortgage. You've taken the cash out at closing, but assuming a 3.75% amortized mortgage, you would have paid more than $46,000 in interest expense and $196,000 in payments.
There's also a question if you can afford a new home. You would have much of your monthly income tied up in the mortgage payments on your former home. You could also pay some cash with the $150,000 you get at closing.
I think both of you must still decide how to split assets in the divorce. Then, one question will be how to attain your future financial goals, possibly including whether you want a new mortgage.
Get more news, money-saving tips and expert advice by signing up for a free Bankrate newsletter.
Ask the adviser
To ask a question of Dr. Don, go to the "Ask the Experts" page and select one of these topics: "Financing a home," "Saving & Investing" or "Money." Read more Dr. Don columns for additional personal finance advice.
Bankrate's content, including the guidance of its advice-and-expert columns and this website, is intended only to assist you with financial decisions. The content is broad in scope and does not consider your personal financial situation. Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy. Please remember that your use of this website is governed by Bankrate's Terms of Use.