Can I Keep My Low Interest Rate After Divorce? What Texas Homeowners Need to Know
The short answer is: maybe—but it depends on your loan, your lender, and how your divorce is structured.
One of the first concerns I hear from homeowners going through a divorce is, “Richard, I have a 2.75% interest rate. Am I going to lose it?”
It’s a great question, and it’s one that’s become much more important over the last few years.
Many homeowners refinanced when rates were historically low. Today, the idea of replacing that loan with one carrying a higher interest rate can be discouraging. Fortunately, there are situations where you may have options—but the key is understanding them before making decisions.
Why This Matters More Than Ever
If your current mortgage has an interest rate in the 2% or 3% range, it could be one of your most valuable financial assets. Giving up that loan without exploring all of your options could cost thousands of dollars over the life of the mortgage. That’s why I always encourage clients to look at the entire financial picture before assuming a refinance is their only choice.
Is Refinancing Always Required?
Not necessarily.
Many people assume the only way to remove a spouse from the mortgage is to refinance into a brand-new loan. While refinancing is often the right solution, it isn’t the only one. In some cases, your existing mortgage may be assumable.
What Is a Mortgage Assumption?
A mortgage assumption allows one borrower to take over an existing mortgage instead of replacing it with a new loan. If approved, this can allow the borrower to keep the existing interest rate, remaining loan term, and unpaid principal balance. That can be a tremendous advantage when current market rates are significantly higher than your existing mortgage.
Which Loans May Be Assumable?
Some government-backed loans may allow assumptions, including:
However, not every loan qualifies, and assumptions aren’t automatic. The lender must approve the transaction, and the borrower assuming the loan generally must qualify under the lender’s requirements. The person assuming must provide documentation on income sufficient enough to qualify on their own.
Just as important, the departing borrower should receive a formal release of liability from the lender. Without that release, they could remain responsible for the mortgage even after the assumption.
The additional complicating matter would be the equity buy out if applicable. The remaining spouse would then have to qualify for a second mortgage cashout. That loan would be limited to 80% of the property value under Texas law.
Richard’s Advice
I’ve met with homeowners who immediately assumed they had to refinance and lose their low interest rate. In some situations, we were able to explore alternatives that they didn’t know existed.
The lesson is simple: don’t assume you know your options until you’ve reviewed your specific loan and circumstances. A short conversation today could save you a substantial amount of money over the life of your mortgage.
When Refinancing Still Makes Sense
Even if you can’t keep your current interest rate, refinancing may still be the best financial decision.
For example, refinancing may allow you to:
- Remove your former spouse from the mortgage.
- Access equity up to 95% of the home’s value with an Owelty lien as part of a divorce settlement when appropriate.
- Meet the requirements of your divorce decree.
- Establish sole ownership and financial independence.
While the interest rate is important, it’s only one part of the decision. The overall financial outcome matters just as much.
Don’t Forget About Texas Owelty Liens
When properly structured as part of a divorce settlement, an Owelty lien can help eligible borrowers access equity while avoiding some of the limitations that apply to standard Texas cash-out refinances. I can provide up to 95% of the home’s value for the equity buy out but a cash-out refinance is limited to 80% in Texas. Refinancing with an Owelty lien normally qualifies for lower rates and fees as well.
Because these transactions involve both legal and mortgage considerations, it’s important to coordinate with your attorney and your mortgage professional early in the process.
Common Mistakes I See
Over the years, I’ve seen homeowners make avoidable mistakes, including:
- Assuming they automatically have to refinance.
- Never asking whether their mortgage is assumable.
- Signing a divorce agreement before understanding their financing options.
- Focusing only on the interest rate instead of the total financial picture.
- Waiting until after the divorce is finalized to explore mortgage solutions.
Many of these mistakes can be avoided with early planning.
Why Planning Early Gives You More Choices
One thing I’ve learned after more than 25 years in the mortgage business is that people almost always have more options before the divorce is finalized than afterward. In fact, the courts will rarely allow changes to the equity buy out after the original decree is signed.
When your mortgage professional and your attorney work together, they can often structure a plan that supports both your legal and financial goals.
That planning may include:
- Reviewing assumption eligibility.
- Evaluating refinancing options.
- Considering an Owelty lien.
- Analyzing affordability.
- Planning for future homeownership.
The earlier these conversations happen, the more flexibility you may have.
Frequently Asked Questions
Can I keep my 3% mortgage after divorce?
Possibly. If your loan is assumable and the lender approves the assumption, you may be able to retain your existing interest rate.
Are conventional loans assumable?
Generally, conventional loans are not assumable. Certain government-backed loans, such as FHA, VA, and USDA loans, may be assumable under specific conditions.
Does my ex have to agree to a mortgage assumption?
If both parties are on the loan and the property is part of the divorce settlement, the process must align with the divorce agreement and lender requirements.
Is refinancing always the best option?
Not necessarily. Every situation is different. Sometimes refinancing is the best solution, while other times an assumption or another strategy may better meet your goals.
Richard’s Final Thoughts
One of the biggest financial mistakes you can make during a divorce is assuming you have only one option.
You may be able to refinance.
You may be able to assume your existing mortgage.
You may benefit from an Owelty lien.
Or there may be another strategy that better fits your situation. The important thing is to understand your options before important decisions become permanent.
If you’re going through a divorce and want to understand how your mortgage fits into the bigger picture, I’d be happy to help you evaluate your situation and explain the available options. Call me at 214.945.1066 or request a consultation here.
