Getting married is a huge milestone – and one of the happiest days of your life. In contrast, a separation and eventual divorce can be devastating, regardless of who initiated the proceedings. Thankfully, you have options when it comes to divorce and your mortgage in Canada. Be sure to reach out to your mortgage agent as soon as possible to help alleviate some of the financial stress that comes along with a separation/divorce.
If you own a home with your spouse, you have serious considerations to make. Are you planning to sell and split the proceeds? Do you wish to buy your spouse out of the home?
The financial burden related to your house can be significant. For many couples, the easiest option is to sell the home and split the costs and proceeds.
It’s important to understand, however, that you’ll likely be charged a prepayment penalty to break your mortgage contract before your term is up. You’ll also be required to jointly pay real estate commissions, legal fees, closing costs and other sales-related fees. But, the profit you gain from selling the home can hopefully provide you with closure and a fresh start.
Another option is to consider staying in the house and releasing your former spouse from the mortgage by removing him/her from the title. While this may sound appealing, it can be an expensive option in that you have to not only buy out your ex spouse’s share of the remaining equity in the home, but you also have to assume the mortgage payments on your own and prove to your lender that you’re financially fit to do so.
If you can afford the mortgage on your own, there are also many benefits to keeping the home including stability, consistency and convenience in terms of amenities, schools and proximity to family, work, etc.
How to buy out your partner in a mortgage
When one spouse decides to remain in the matrimonial home following separation/divorce, there’s a special equity buyout program available to free up more funds. Formerly known as a spousal buyout, this program enables you to finance up to 95% of the value of your home in order to buy out your ex. When refinancing a typical mortgage, you can only access up to 80% of the home’s value. This added access to equity can mean the difference between one spouse being able to buy out the other’s half of the home versus having no other choice but to sell the home.
Have questions about navigating your home/mortgage options during a separation or divorce? Answers are just a call or email away!