Lynnley Browning wrote in the New York Times on April 7, 2011 about a way to avoid refinancing costs after a divorce where one party is to get the house, buy out the other and/or indemnify the other against the existing mortgage. In this economic climate, many homeowners experience difficulty with removing a former spouse’s name from the mortgage after buying out his or her equity stake in the marital house. Many may think that refinancing is the only choice.
As Browning points out, "[t]here is another, little-known option that can avoid refinancing and its costs, which generally run 3 to 6 percent of the outstanding loan principal," citing LendingTree. Browning says that the borrower must "simply ask" the lender to remove the former spouse’s name from the mortgage, leaving the loan note in the "buying" spouse's name only.
Jack Guttentag, a mortgage expert and emeritus finance professor at the Wharton School of Business at the University of Pennsylvania says that “[t]his is a common and often messy business. “Lenders seldom have a reason to take a co-borrower’s name off the note.” The secret is, though, being able to prove that the homeowner can afford the payments and meet the required credit criteria — typically those of the investor in the loan. If that's the case, the bank may agree to a release of liability.