Why do you need a new mortgage becuase of a divorce?

You often need a new mortgage with a divorce because the original mortgage is in both spouses' names, and the lender doesn't allow one person to simply be "removed" from the loan. Here are the main reasons:

1. Remove One Spouse from the Loan

Divorce settlements typically assign the home to one spouse. To remove the other from financial responsibility, the remaining spouse must refinance into a new mortgage under their name only.

2. Protect Credit

If both names stay on the original mortgage and one spouse doesn’t pay, both credit scores suffer. Refinancing separates financial obligations.

3. Meet Court Requirements

Divorce decrees often require the home to be refinanced within a certain timeframe to:

• Remove one spouse from the loan

• Possibly pay out the other’s share of the equity

4. Cash Out for Buyout

The spouse keeping the home may need to cash out equity to buy out the other's interest. This can only be done through a new mortgage (typically a cash-out refinance).

5. Adjust Mortgage Terms

The person keeping the home might need a mortgage with:

• A different interest rate

• A new loan term

• Lower monthly payments based on their single income