Everything you need to know about home loans after divorce

Rates and fees last updated on

If you have recently become divorced or separated from your spouse then it may be time to consider refinancing. Lenders might class this as two separate transactions; a refinance and a purchase.

Refinancing-after-a-divorce2According the Australian Bureau of statistics, in Australia, there are around 50,000 divorces each year. There are many nuances when it comes to handling financial decisions after a divorce or separation.

Many want to know what to do with the family home or investment properties when separation or divorce occurs. There are a few options, which include:

  • Buying out the property share owned by your ex-spouse
  • Selling your property share to your ex-spouse
  • Selling the home and sharing the profits

Do I have to refinance after a divorce?

Whether or not you'll need to refinance depends on what you decide to do with your property after your divorce. If you decide to buy out your ex-spouse's share of the house you will likely need a home loan to do so. Most lenders will treat this application as a refinance. While other countries may allow you to take possession of the home loan, in Australia, the bank does not allow you to take over someone else's loan. You cannot simply remove an individual from the loan agreement. The only option is to refinance your loan and get a different loan in either your name or the name of the individual retaining the property's ownership.

What if I choose to sell my share to my ex-spouse?

If you choose to sell your share to your ex-spouse, they will have to refinance the home loan to buy out your share of the property and to remove your name from the home loan. You'll also want to make sure to have your name taken off the property title after the divorce.

How to get your name off the property title after divorce

What are the tax implications of selling to my ex-spouse?

Should you sell your share of the property to your ex-spouse, you will be eligible for capital gains tax (CGT) rollover relief. This means that you won't have to pay CGT on the share you sell to your ex-spouse, because the spouse who receives the property is assumed to receive the capital gain or loss on the property should they decide to sell in the future.

Buying out your ex-spouse

There are many couples who divorce or separate under less than ideal conditions, which means that even when you agree to dividing up your assets, you could still meet with difficulties. Here are some of the drawbacks:

  • Issues may arise when you want to come to an agreement about the cash settlement after the property has been sold.
  • Bad credit may exist on your credit file due to unpaid bills related to the divorce
  • Both of you may refrain paying the mortgage based on legal advice
  • You may not have anticipated the separation and may not be prepared to put in another home loan application

What about stamp duty?

In a lot of cases, you won't have to pay stamp duty when buying out the property share of your ex-spouse, whether it is a single family home or investment property. Stamp duty is not normally payable on a transfer of equity. Stamp duty is a complex legal issue, so you must speak with a solicitor for confirmation of applicable stamp duty, depending on your situation.

Case Study: Todd and Jenny

refinance after divorce case studyTodd and Jenny had been married for almost 10 years when their marriage started to fall apart. They had a $340,000 home loan on a property valued at $425,000 and had been diligently paying it over the years and had the balance at $280,000. They had avoided LMI by saving a substantial deposit to have an LVR of 80%.

After the divorce there were questions around the property and who should take what and how much share each would get. After consulting with a solicitor it was decided that Todd would buy out Jenny's half of the property. Here's the buy out scheme they worked out. The solicitor has assumed a 6% capital growth of the property each year.

Property value including capital growth increase

YearProperty Value
1$450,500.00
2$477,530.00
3$506,181.80
4$536,552.71
5$568,745.87
6$602,870.62
7$639,042.86
8$677,385.43
9$718,028.56
10$761,110.27

Details on Todd and Jenny's Home Loan

  • Average interest rate (ABA stats): 0.0726
  • Loan term: 30 years
  • Repayment frequency: monthly
  • Repayment type: P&I
  • Monthly repayments: $2,321.71
  • Principal left after 10 years: $296,729.10
  • Equity build up: $43,270.90

To work out how much Todd owes Jenny the solicitor divides the total property value at the end of their marriage by the original property value. To buy out Jenny, Todd will need to pay $380,555.14

Property value 3

What about capital gains tax?

Should you take ownership of the property after a divorce and subsequently decide to sell, whether or not you're liable for capital gains tax (CGT) will depend on how the property was used before and after the divorce.

If you continue to live in the property after the divorce, you won't be liable for capital gains tax when you sell. You'll be exempt under the main residence exemption.

If you choose to move out of the property and rent it out, you may continue to be exempt from CGT under the temporary absence rule. So long as the property is still listed as your main place of residence, you can be absent up to six years.

Should you move into a new main place of residence and rent out the property after the divorce, CGT will be calculated under the assumption that you acquired the property at its current market value at the time it became income-producing. That market value will be the base by which CGT is calculated when you sell.

Read more about CGT exemptions

Mortgages to pay out your ex-spouse

You could overcome these obstacles or difficulties by applying for a home loan to pay out a settlement for divorce, an agreement for separation or settling a property. However, a bank will assess any of these as either an acquisition or a refinance. Because of this, you will find that the lending institution will evaluate the loan application differently by applying a variety of lending conditions, which could include:

  • Proof of funds needed to pay out your ex-spouse, if there is not enough equity in the home. This is similar to a home loan purchase.
  • The bank may not ask for proof of savings as they would a purchase.
  • An excellent history of repayment on your existing home loan is necessary. This is similar to a refinance loan.

Is now a good time to refinance your mortgage?

See below for some options when refinancing your home loan. You may also want to contact a broker to discuss your situation further.

Comparison of Home Loans

Rates last updated September 20th, 2017
$
Loan purpose
Offset account
Loan type
Your filter criteria do not match any product
Name Product Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment Short Description
3.64%
3.66%
$0
$0 p.a.
80%
A basic home loan with a competitive rate and low fees.
3.64%
4.83%
$0
$0 p.a.
95%
Owner-occupiers can lock in a competitive rate with no ongoing fees. Conditions apply.
3.49%
4.47%
$0
$375 p.a.
90%
Discount off an already competitive interest rate for loans over $150k. NSW, QLD and ACT residents only.
3.74%
3.74%
$0
$0 p.a.
80%
Combine a low variable interest rate and free redraw with no application or ongoing fees.
3.69%
3.72%
$0
$0 p.a.
80%
A low rate home loan with no ongoing fees.
3.72%
3.74%
$0
$0 p.a.
80%
Take advantage of a 100% offset account along with no annual or application fees.
3.79%
3.84%
$445
$0 p.a.
90%
A special limited time offer for owner occupiers. An IMB Transaction Account must be opened with this loan.
3.86%
3.87%
$0
$0 p.a.
80%
Pay no ongoing fees on a competitive variable rate home loan.
3.69%
4.86%
$0
$395 p.a.
90%
A special rate for first home buyers buying residential property and borrowing over $150K. 350K NAB Rewards Points offer available. Terms and conditions apply.
3.74%
4.06%
$0
$299 p.a.
95%
A loan with no application fee and borrow up to 95% LVR.
3.99%
4.02%
$600
$0 p.a.
90%
Take advantage of a 0.60% discount on your rate, a 100% offset account and no ongoing fees.
3.97%
4.02%
$445
$0 p.a.
90%
Get a competitive rate without features you may not use.
3.84%
3.84%
$0
$0 p.a.
110%
Requires a family member to act as guarantor. Discounted rate available with family pledge loans. Family pledge loans require no LMI and no deposit. NSW, Qld and ACT only.
3.68%
3.69%
$0
$0 p.a.
80%
A competitive variable rate product with low fees offered by a 100% online lender.
3.64%
3.64%
$0
$0 p.a.
70%
A basic low-rate home loan that still offers some useful features.
3.74%
3.75%
$0
$0 p.a.
70%
A special variable rate home loan with no application or ongoing fees.
3.97%
3.99%
$0
$0 p.a.
90%
A great interest rate home loan offer with unlimited redraw and unlimited extra payments.
3.74%
4.81%
$0
$0 p.a.
95%
Get a competitive 2-year fixed rate with no application or ongoing fees.
3.84%
3.84%
$0
$0 p.a.
90%
A competitive variable rate with a redraw facility. NSW, QLD and ACT residents only.
3.96%
3.98%
$0
$0 p.a.
90%
Take advantage of a redraw facility, competitive variable rate and no application or settlement fees for a limited time.
3.88%
4.89%
$0
$395 p.a.
95%
A fixed rate package with flexible repayment options. 350K NAB Rewards Points offer available. Terms and conditions apply.
3.97%
3.97%
$0
$0 p.a.
80%
A competitive variable rate home loan with no ongoing fees.
3.72%
4.19%
$0
$0 p.a.
80%
Enjoy a variable 3 year introductory rate with the Bankwest Equaliser Home Loan.
3.64%
4.03%
$0
$395 p.a.
80%
Apply for a new owner occupier loan or refinance from another lender and receive this discounted rate.
4.09%
4.12%
$0
$0 p.a.
80%
Access the equity in your home with a competitive interest rate and no application fee.
3.99%
4.02%
$395
$0 p.a.
80%
A flexible low-rate variable home loan that lets you combine your loan with other financial products.
3.69%
4.45%
$0
$375 p.a.
90%
Discount off an already competitive 2 year fixed rate for loans over $150k. NSW,QLD and ACT residents only.
3.83%
3.83%
$0
$0 p.a.
70%
A special low variable rate for owner occupiers with 100% offset account and no application or ongoing fees.
3.95%
3.95%
$0
$0 p.a.
95%
A low rate home loan with no application or ongoing fees. Note that to be eligible for this loan you must be QLD resident.
3.89%
3.91%
$0
$0 p.a.
80%
Package your owner-occupied loan with your investment loan and enjoy low rates for both.
3.69%
4.73%
$0
$0 p.a.
95%
A limited time fixed rate home loan with extra repayment abilities. Conditions apply.
3.79%
3.92%
$0
$10 monthly ($120 p.a.)
80%
A competitive variable rate home loan with flexible features. You can earn 30,000 Velocity Points for every $100k you borrow (for a limited time, subject to eligibility requirements).
4.09%
4.11%
$0
$0 p.a.
80%
A low variable rate loan with no application or ongoing fees.
4.19%
4.19%
$0
$0 p.a.
90%
100% offset account, unrestricted additional repayments and no monthly account keeping fees
3.99%
4.77%
$0
$0 p.a.
95%
A competitive 3 year fixed rate with a redraw facility and split loan options, plus no application fee.
3.74%
4.85%
$0
$0 p.a.
95%
Enjoy a low interest rate and borrow up to 95% (with LMI) of your property's value.
3.54%
3.54%
$440
$0 p.a.
80%
Borrow up to 80% LVR with no ongoing fees and a 100% offset account.
4.33%
4.33%
$363
$0 p.a.
70%
A variable home loan with $0 annual or monthly fees.
3.80%
3.81%
$0
$0 p.a.
95%
A no frills loan with a competitive rate and a maximum LVR of 95%.
4.03%
4.07%
$0
$0 p.a.
95%
Enjoy a basic home loan with a high LVR and no application or ongoing fees.
3.88%
4.47%
$0
$0 p.a.
95%
This competitive introductory rate is a limited time offer for new owner-occupiers
3.68%
3.69%
$600
$0 p.a.
90%
Get a low variable rate along with some important basic features.
3.79%
3.79%
$0
$0 p.a.
80%
Minimum loan amount for this basic home loan is $750001.
4.39%
5.42%
$300
$10 monthly ($120 p.a.)
95%
Lock in a fixed interest rate term for repayment certainty.
3.69%
4.03%
$0
$299 p.a.
80%
Enjoy a low variable rate with no application fee.
3.99%
4.99%
$0
$395 p.a.
95%
A package home loan with fee free extra repayments available during the fixed term.
3.99%
4.98%
$0
$395 p.a.
95%
A discounted package rate for owner occupiers with the ability to package a Qantas rewards earning Amplify credit card. $1,500 cashback available for refinancers. Conditions apply.
3.99%
4.90%
$0
$395 p.a.
95%
Lock in a discounted fixed rate with a low service fee.
3.65%
3.66%
$0
$0 p.a.
90%
Enjoy a low variable rate with no ongoing fees and borrow up to 90% of the value of the property.

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What if you have neglected loan repayments?

It is not uncommon for individuals who are experiencing a divorce or separation to miss some of their mortgage repayments. In many cases, disputes will arise over which partner should pay, and because of the emotional chaos many individuals will not remember to make regular payments. If you plan to buy out your ex-spouse it is good practice to continue paying your share of the mortgage. Skimping on payments doesn't reflect well on your credit file and may make it harder to apply for a home loan to finish up the settlement. Most mortgage lenders will not refinance a home loan unless the borrower has flawless repayments for six consecutive months.

Is it possible to be in arrears with a loan and still get approved?

There are some lenders that will agree to three month repayment history if there are no other credit issues. These lenders will take a look at your overall situation, regardless of the number of payments missed. You will, however, have to provide proof that you can make the new repayments.

The bank valuation is crucial to your refinanced loan

If the lender does a valuation on the property and the figure comes in at a low cost, the loan could be declined. This may cause you to halt the divorce settlement, which would prevent you from dividing the property successfully. Unfortunately, there is no way you can control the valuation provided by the lender. Before you submit your application, you can seek the assistance of an experienced mortgage broker who will be able to get different valuations from various lenders. You would then put in an application to the lender that has the most satisfactory valuation. It should be noted, though, that the drawback of putting in so many applications is that too many credit enquiries can damage your credit score and make it more difficult to qualify for a loan.

Understanding the value of your house to the bank

How much am I able to borrow?

If your history of repayment has been excellent and you meet all the bank guidelines, then may be possible to get a loan for 95% of the value of your property. You will have to pay lenders mortgage insurance (LMI) if you borrow more than 80% of the value of your property. If you want to borrow in excess of 95% of the value of your property, a security guarantee is needed. Calculate how much you can borrow with our calculator.

Can I use child support payment as income to get a home loan?

Yes, some lenders will accept your child support benefit as income when applying for a mortgage however this will vary depending on the lender. The following may apply:

  • Age of dependents. Most lenders will take into account the age and number of dependents that you have. The older your children, the less likely the lender will accept your Family Tax Benefit (FTB) income, particularly children aged 11 years and over.
  • Centrelink statements. The lender will request at least 6 months of Centrelink statements. You can download a statement from the Department of Human Services website.

Family Tax Benefits (FTB) Part A and B and child support income are accepted by a number of lenders. However, keep in mind that some lenders view child support payments as an unreliable source of income so they may not take this into consideration when reviewing your borrowing capacity.

Find out more about home loans for Centrelink recipients.

When speaking to your mortgage broker or lender about your situation, you'll need to specify whether the child support payments are via the Child Support Agency (CSA) and whether the payments are court ordered.

You may also be required to supply the following paperwork:

  • A copy of the Family Court Order
  • Statements showing the benefit being deposited into your account
  • A letter from your solicitor confirming the status of the benefit

Recently divorced? It may also be time to consider reviewing your life insurance policy

If you have recently separated with your partner, it could be worth also reviewing your current life insurance cover to ensure you still have adequate cover in place. You may currently have a joint policy in place with your spouse that you would like to review or you may want to adjust the beneficiaries on your policy. Just as getting married is a key time to consider taking out life cover, divorce is an important time to review the cover you have in place to ensure it still meets your needs. Review your life insurance and receive a free quote for cover

Marc Terrano

A passionate publisher who loves to tell a story. Learning and teaching personal finance is his main lot at finder.com.au. Talk to him to find out more about home loans.

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90 Responses

  1. Default Gravatar
    SteveNovember 16, 2015

    I am going through a divorce and wife wants to sell the family house. I have used the equity in the family to buy an investment property. This 2nd property in my name only. Do I have to sell the investment property before we can sell the family house. What are my options?

    • Staff
      BelindaNovember 17, 2015Staff

      Hi Steve,

      Thanks for your enquiry.

      finder.com.au is an online comparison service so we are not licensed to provide you with personal financial advice.

      As you’ll see above on this page, one of the ways to distribute assets following a divorce is to sell the property and share the proceeds. If all the equity in the family home has been used to purchase the investment property, then you may need to sell the investment property first. However, there may be other options available to you depending on any other assets that you own.

      I strongly suggest that you seek legal and financial advice regarding your options in this situation.

      Thanks,
      Belinda

  2. Default Gravatar
    lynJuly 6, 2015

    I am being divorced after 16 yrs of marriage. I have a medical condition and on a disability pension. My ex is a professional.

    My quality of life going forward will of course be in an extreme difference to his.

    I am retaining the majority of custody of our child. A lawyer has told me all things considered, particularly spousal support wise. I am entitled to have the house. There is no equity in it at this stage.

    However due to being a pensioner i don’t think Id meet the refinancing requirements. Isn’t that must be whats done. The house is not merely transferred to me.

    • Staff
      BelindaJuly 8, 2015Staff

      Hi Iyn,

      Thanks for your enquiry.

      Firstly, I’d like to point out that finder.com.au is an online comparison and general information service and we can’t offer personalised advice.

      Your best course of action would be to fill out the form on this page to speak with a mortgage broker and continue to seek legal counsel to discuss your options.

      All the best,
      Belinda

  3. Default Gravatar
    KarenJuly 6, 2015

    I have a new partner. He is paying the mortgage but is not in the title. Do we pay him back first and then split the difference or because he is living with me in the home is he just considered to be me paying the mortgage?

    • Staff
      BelindaJuly 7, 2015Staff

      Hi Karen,

      Thanks for your enquiry.

      Please note that finder.com.au is an online comparison and general information service so we can’t offer specific advice regarding this situation.

      Your best course of action would be to fill out the form above on this page to speak with a mortgage broker to discuss your options. You may also want to consider speaking with a solicitor.

      On this page you can learn more about the process of adding a partner’s name to your property title.

      Thanks,
      Belinda

  4. Default Gravatar
    johnMay 31, 2015

    I own my home and am borrowing 50 k against it for renos. do I pay stamp duty

    • Staff
      BelindaJune 1, 2015Staff

      Hi John,

      Thanks for your enquiry.

      If you are refinancing, you may have to pay stamp duty again.

      Please note that the requirements and legislation for stamp duty will vary according to the state.

      On this page, you can read more about stamp duty and fill out the form to speak with a mortgage broker.

      Thanks,
      Belinda

  5. Default Gravatar
    LisaMay 11, 2015

    My ex is happy to sign the house over to me do I need to refinance or can he just take his name off

    • Staff
      JodieMay 12, 2015Staff

      Hi Lisa,

      Thank you for your inquiry.

      You are able to remove someones name from the title but unfortunately Australia does not allow someone to just be removed from a mortgage, in order to remove a name from a mortgage it will need to be refinanced. Please contact your lender or a mortgage broker to discuss the exact process and any fees involved with this.

      Regards
      Jodie

  6. Default Gravatar
    MrMay 5, 2015

    My wife and I are separating and owe $380,000 on our house. It has been valued at $530,000 so to keep the house myself do I need to pay her $150,000?

    • Staff
      JodieMay 12, 2015Staff

      Hi Mr Mac,

      Thanks for your question.

      You’ll need to speak to a solicitor to confirm and initiate this. Generally if you and your ex-wife as well as your solicitors will work off the valuation of the property to work out how much it would cost to buy out her half.

      But this would all be discussed with your solicitor.

      Regards
      Jodie

  7. Default Gravatar
    GaynorApril 18, 2015

    is it an criminal offence if my husband borrows money from the equity on our house, without my consent

    • Staff
      JodieMay 8, 2015Staff

      Hi Gaynor,

      Thank you for getting in touch.

      You have come through to finder.com.au. a financial comparison site, we are not able to advise on the legalities around a properties ownership. Please contact a local solicitor who can assist with these discussions.

      Regards
      Jodie

  8. Default Gravatar
    SandraApril 6, 2015

    4 siblings own an investment property handed down to them by parents many many years ago and two would like to sell their portion off to the two that would like to hang onto it. How does the house get valued and by whom. Does the house need to go to auction? Who decides the value of the house?

    Thanks

    • Staff
      ShirleyApril 7, 2015Staff

      Hi Sandra,

      Thanks for your question.

      Should you acquire a deceased estate, it is CGT-free if sold within two years of the death, or continues to be the main residence of the beneficiary.

      Generally your CGT liability is based on what you sold the asset for, minus the cost base plus deductions.

      The ATO may also require a valuation done by a certified valuer.

      For a more detailed discussion of your circumstances, please contact The Property Tax Specialists today.

      DISCLAIMER

      Readers should not act on the information above without obtaining professional advice relevant to their circumstances. It is intended as information only.

  9. Default Gravatar
    LeighApril 4, 2015

    Hi
    We wish to buy half of our daughters unit (which she lives in now) so she can buy a bigger home for herself and children, but keep the unit, which would be rented.
    Can we take out separate loans as 50/50 owners of the first home as our tax situation will be different?
    Do we need to get a sworn valuation for future tax purposes as the unit will become an investment property and subject to capital gains tax?
    Thank you greatly for your assistance.
    Regards
    Leigh

    • Staff
      ShirleyApril 7, 2015Staff

      Hi Leigh,

      Thanks for your question.

      You can take out two separate loans with the one lender for the property, but this will be up to the discretion of the lender.

      The lender will most likely request a valuation on the property when the loans are applied for. You can use this as documentation in the future when figuring our CGT. CGT is generally based on what you acquired the asset for and the selling price.

      Cheers,
      Shirley

  10. Default Gravatar
    SallyMarch 7, 2015

    I am thinking about buying in half of my friends house. We will be 50/50 partners and use this house as an investment. Will I have to pay stamp duty or any other kinds of taxes?
    Regards
    Sally

    • Staff
      ShirleyMarch 9, 2015Staff

      Hi Sally,

      Thanks for your question.

      Please note that rules and regulations regarding stamp duty vary according to the state or territory that holds the property.

      In NSW, you typically need to pay stamp duty though there are some exemptions. If the property isn’t used as your main residence, land tax may also apply.

      A conveyancer can help you with the buying process for a fee.

      Cheers,
      Shirley

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