Refinancing After a Separation – How to Buy Out a Partner or Restructure the Home Loan

Refinancing After a Separation – How to Buy Out a Partner or Restructure the Home Loan

Separating is stressful enough — dealing with the home loan on top of it can feel overwhelming. The good news? Refinancing gives you a clear pathway to keep the home, buy out a partner or restructure the loan so both parties can move forward independently.

This guide explains how separation refinances work and what lenders look for when one person wants to take over the mortgage.

1️⃣ What Happens to the Home Loan When You Separate?

When a relationship ends, you generally have three options:

• One partner keeps the home and refinances into their own name.
• The home is sold and the loan is closed.
• Both partners stay on the loan temporarily (not ideal long-term).

Refinancing is the cleanest way to move forward when one person wants to keep the property.

2️⃣ How a Buyout Works

If one partner wants to keep the home:

• A property valuation is ordered.
• The loan is refinanced into the retaining partner’s name.
• A lump sum (the buyout amount) is paid to the other partner.
• The old loan is closed and replaced.

This creates a fresh start with a clean title and no shared debt.

3️⃣ How to Calculate the Buyout Amount

The buyout usually equals:

(Property value – loan balance) ÷ 2

For example:
If the home is worth $900,000 and the loan is $400,000:
Equity = $500,000 → Each partner’s share = $250,000.

The retaining partner may refinance to access the additional funds needed for the payout.

4️⃣ What Lenders Look For in a Separation Refinance

Lenders assess the retaining partner’s ability to manage the loan alone. They review:

• Your income and employment stability.
• Your living expenses post-separation.
• Your credit history.
• Your borrowing capacity on a single income.
• Your exit strategy if income is changing (e.g. parental leave).

Serviceability is often the biggest factor.

5️⃣ Why an Updated Valuation Is Essential

The valuation:

• Determines your equity position.
• Confirms the buyout amount.
• Decides whether LMI is payable.
• Influences your maximum borrowing capacity.

Getting the valuation right is crucial for a fair and accurate outcome.

6️⃣ Options If You Don’t Have Enough Borrowing Power

If the numbers don’t quite work, you still have options:

• Using a family guarantor temporarily.
• Extending the loan term.
• Consolidating high-interest debts.
• Repricing with your existing lender.
• Trying lenders with more generous servicing policies.

A broker can help map out the strongest approach.

7️⃣ When Children Are Involved

Lenders may consider:

• Upcoming parental leave.
• Child support paid or received.
• Living expense adjustments.
• Shared custody arrangements.

These factors can influence borrowing power, so accurate documentation is important.

8️⃣ Common Mistakes to Avoid During a Separation Refinance

Avoid:

• Making multiple loan applications (hurts your credit).
• Agreeing to a buyout before checking borrowing capacity.
• Leaving both names on the loan long-term.
• Ignoring property valuations in negotiations.
• Refinancing without understanding future cash flow.

A clear financial plan reduces stress for both parties.

9️⃣ When Selling Might Be the Best Option

Sometimes selling is the cleanest outcome, especially when:

• Borrowing power is too low.
• Neither partner wants the home.
• The property requires major repairs.
• You prefer a fresh financial start.

This doesn’t prevent refinancing later once things stabilise.

🔟 The Smartest Way to Refinance After a Separation

A broker can help you:

• Determine your borrowing capacity post-separation.
• Order valuations and calculate buyout amounts.
• Find lenders who can accept your new circumstances.
• Structure your loan so you can move forward confidently.