A low mortgage rate has become one of the most valuable financial assets many homeowners hold, creating difficult choices for couples dividing property during divorce.
The dilemma recently drew widespread discussion after a homeowner facing divorce considered whether to assume a 4.75% VA-backed mortgage on a recently purchased Arizona home rather than sell it. Although the property had little equity and would likely generate a monthly loss as a rental, the below-market interest rate made keeping the loan appear increasingly attractive compared with today’s significantly higher borrowing costs.
The situation reflects a growing challenge facing homeowners whose mortgages were secured before interest rates climbed. Financial advisers say preserving a low-rate loan can offer substantial long-term savings, but it should never outweigh whether the property remains affordable after a household’s income changes.
Why Low Mortgage Rates Have Become More Valuable
Mortgage rates have risen sharply from the historic lows seen during the pandemic, increasing borrowing costs for anyone purchasing or refinancing a home. Freddie Mac’s weekly mortgage survey continues to show average 30-year fixed mortgage rates well above the levels many homeowners locked in several years ago.
That difference has turned existing low-rate mortgages into valuable financial assets. Replacing a loan carrying an interest rate below 5% with one at current market rates could add hundreds of dollars to monthly repayments, making homeowners reluctant to sell even when major life events such as divorce occur. As a result, separating couples are increasingly weighing the long-term value of keeping an existing mortgage against the practical realities of maintaining the home independently.
Affordability Often Matters More Than the Interest Rate
A favourable mortgage rate alone does not determine whether keeping a property is financially sensible. Financial planners generally recommend assessing whether one income can comfortably cover mortgage repayments, property taxes, insurance, maintenance, homeowners’ association fees, and unexpected repairs. Limited equity can also reduce the financial benefit of holding onto a property, particularly if rental income would not fully cover ownership costs.
In the Arizona case, projected rent fell below the combined mortgage and homeowners’ association payments before maintenance, vacancies, or repair costs were considered. That illustrates why a low interest rate does not automatically make a property a sound investment. Rather than focusing solely on preserving favourable borrowing terms, advisers encourage homeowners to evaluate cash flow, emergency savings, and long-term financial flexibility.
Mortgage Assumptions Can Preserve Existing Loan Terms
One option available after some divorces is a mortgage assumption, allowing one borrower to take responsibility for the existing loan while keeping its original interest rate and terms. Freddie Mac notes that mortgage assumptions are commonly used following divorce or inheritance because they enable ownership changes without replacing the original mortgage, provided the borrower qualifies under the lender’s requirements.
VA loans are among the mortgage products that may be assumable, although approval remains subject to programme rules and lender review. Because not every mortgage qualifies, homeowners considering this option are advised to speak with their loan servicer and obtain independent legal and financial advice before making property settlement decisions.
Financial Security Extends Beyond Keeping the Home
Property decisions during divorce should support long-term financial stability rather than preserving a low interest rate at any cost. Financial advisers generally recommend considering overall affordability, future earning potential, emergency savings, retirement planning, and lifestyle goals alongside housing decisions.
Selling a property may provide greater financial flexibility for some households, while assuming an existing mortgage may be appropriate for others with sufficient income and long-term plans to remain in the home.
The broader lesson is that a low-rate mortgage is valuable only if it supports a sustainable financial future. As higher borrowing costs reshape the housing market, homeowners navigating divorce are increasingly finding that the right decision depends less on the loan itself than on their ability to comfortably manage the life that comes with it.
