MORTGAGE SERVICES

Divorce Specific Solutions

Addressing the Matrimonial Home
during separation and divorce
comes with its own unique challenges.

Dividing Home Equity: Selling, Refinancing or Divorce Mortgage

Do I Buy Out My Spouse (Refinance) or Do We Sell?

Many people have a deep emotional connection to their home and are reluctant to part with it. We may desire to maintain stability for our children or may wish to remain in a familiar neighborhood.

After everything is considered, the choice between buying out your spouse or selling the marital home essentially comes down to finances. Can you manage the costs independently? Here are a few factors to consider before you make your decision.

Your home holds memories, both good and bad. Do you wish to bring these memories along as you step into your new life? There is something to be said about creating fresh experiences in a new home.
Children are often more adaptable than you might realize. Many families leverage the enthusiasm of new homes to help their children transition and adjust.
Are you able to maintain the home on your own? Owning a home on your own means the responsibility for cutting the grass, shoveling the driveway and fixing the roof. Be prepared that you will have to do this without your ex’s assistance (even if they promise to help.)
Ensure you don’t become “house poor.” Assuming an burdensome financial commitment may add to your stress and hinder your financial recovery.

How Do I “Buy Out” My Spouse?

“Buying out” your Spouse means you are buying the matrimonial home from your spouse, meaning you must take on not only the existing mortgage but also pay out your spouse’s half of the house’s equity. For many, this means assuming the existing mortgage and often refinancing the mortgage to include the amount owed to your spouse.

For instance, if your house is worth $800,000 and your current mortgage is $300,000 that means the remaining equity is $500,000 of which your spouse would be owed half ($250,000).

Therefore, if you choose to keep the marital home, you will assume the existing $200,000 mortgage and increase it by another $250,000 to pay out your spouse. You will now carry the new mortgage in the amount of $450,000.

Option	Description	Pros	Cons
Selling the Property	Selling the home and dividing the proceeds.	Clear and immediate division of assets; liquidation of equity.	Both parties must relocate; dependent on market conditions.
Refinancing	Obtaining a new mortgage large enough to pay out the previous mortgage and your spouse’s equity share.	Retain ownership of the home. Interest rates at Market Rate.	Qualification for a new mortgage required; potential closing costs and higher mortgage payments.
Divorce Mortgage	Taking out a divorce mortgage to pay the spouse’s share of asset.	Retain ownership. No monthly payments required; allows one spouse to remain in the home.	Higher Interest rates and closing costs; property to be sold or refinanced at a later date.

Option	Description	Pros	Cons
Selling the Property	Selling the home and dividing the proceeds.	Clear and immediate division of assets; liquidation of equity.	Both parties must relocate; dependent on market conditions.
Refinancing	Obtaining a new mortgage large enough to pay out the previous mortgage and your spouse’s equity share.	Retain ownership of the home. Interest rates at Market Rate.	Qualification for a new mortgage required; potential closing costs and higher mortgage payments.
Divorce Mortgage	Taking out a divorce mortgage to pay the spouse’s share of asset.	Retain ownership. No monthly payments required; allows one spouse to remain in the home.	Higher Interest rates and closing costs; property to be sold or refinanced at a later date.

REFINANCING A MORTGAGE

Should I Refinance a Mortgage During a Separation?

When you’re on the verge of separation or have recently separated, and your mortgage term is expiring, it’s crucial to approach the situation with care. One significant mistake to avoid, if separation is on the horizon, is renewing your mortgage. This mistake often leads to additional, substantial and costly penalties that can arise when either party seeks to buy out the matrimonial home or when the home is being sold.

Here’s what you should keep in mind:

Avoid Renewal: Renewing a fixed mortgage prior to separation can result in hefty penalties, especially when dealing with the division of the matrimonial home.
Debt Consolidation: Refinancing your mortgage before divorce to consolidate debt might not be wise. Rolling unsecured debts, into a secured mortgage can hinder your ability to individually address those debts later on.
Separation Agreement: When you separate, the handling of your debts should be addressed in your Separation Agreement. If your separation is imminent, leave debts out of the mortgage and deal with them according to your agreement.
Contact Your Bank: If your mortgage matures during a separation, promptly inform your bank about the situation.
Bank’s Assistance: Many banks are willing to offer options like extending your current mortgage for a few months or placing you in a temporary mortgage to provide time to address your divorce matters. While the interest rate might be slightly higher, this approach is significantly more cost-effective compared to potential mortgage penalties.

By communicating openly with your bank and considering the implications of mortgage renewal, you can navigate this critical financial aspect more effectively during a separation.

In today’s market there are notable limitations in acquiring a mortgage. The best way to access a divorce mortgage is to contact a specialized divorce mortgage broker, as they have access to all of the banks in Canada.

To qualify for a mortgage in Canada, you generally need to meet certain requirements set by lenders, banks and financial institutions. The specific criteria can vary slightly from one bank to another, but here are the common factors that determine your eligibility for a mortgage:

Separation Agreement: Your lender will require a finalized and legal Separation Agreement signed by you and your spouse, clearly explaining the child and spousal support obligations.
Good Credit Score: A strong credit score is crucial. Most lenders require a credit score of at least 680 or higher.
Steady Income: You’ll need a consistent and verifiable source of income that demonstrates your ability to make mortgage payments.
Employment History: Lenders often prefer at least two years of consistent employment in the same field.
Debt-to-Income Ratio (DTI): Lenders assess your DTI, which compares your monthly debt payments to your gross monthly income. A lower DTI is preferable, typically below 43-50%.
Property Appraisal: The property you’re purchasing will need to be appraised to ensure its value aligns with the mortgage amount.
Mortgage Stress Test: Introduced in recent years, this test evaluates your ability to make mortgage payments if interest rates were to rise. You need to qualify under a higher interest rate than the actual rate you’re applying for.

It’s important to note that these are general guidelines, and each lender may have slightly different requirements. Consulting with a mortgage broker or a lending professional can help you understand the specific requirements for your situation and guide you through the process of applying for a mortgage in Canada.

What is a Divorce Mortgage

A Divorce Mortgages is a creative, short-term solution that enables newly separated homeowners to buy-out their spouse, maintain 100% ownership, while remaining in their home for up to an additional two years, without monthly payments.

Navigating a separation often brings significant financial adjustments. particularly when it comes to sustaining a household once supported by dual incomes. In a market where home values are increasing rapidly and the ability to qualify for a traditional mortgage is challenging, many individuals are seeking other options to be able buy the matrimonial home, if only temporarily.

In such circumstances, a divorce mortgage emerges as a valuable solution, offering flexibility and financial stability during this transitional phase. For couples facing the complexities of asset division, particularly when substantial home equity is involved, a divorce mortgage can serve as a vital financial tool. By tapping into home equity, it offers a lifeline during the intricate process of asset distribution, alleviating financial strains and fostering equitable living arrangements for both parties.

A divorce mortgage is a smart solution for individuals who:

may want to keep the home but cannot pay out equalization proceeds to an ex-spouse
may not qualify for a traditional mortgage
wish to delay the sale of their home to allow children to complete schooling
require time to reestablish their new living arrangements or situations, or
temporarily require no house payments

A Divorce mortgage is a temporary, transitional equity loan that allows an individual to borrow up to 65% of your home’s equity, enabling you to delay the sale of your home and stay in your home for up to two years without making payments. Notably, funds can be disbursed to the departing spouse at the loan’s closing, facilitating a smooth transition.

Benefits of a Divorce Mortgage

A divorce mortgage provides one spouse with the ability to borrow money based on your home’s value and available equity – regardless of income.
The mortgage payments are prepaid from the money borrowed meaning there are no monthly payments.
A divorce mortgage can simplify the property division process in a divorce, ensuring both parties can move forward with new living arrangements and financial independence.
Qualification is not based on income.
you become the sole owner of your home

Divorce Mortgage (The Fine Print)

interest rates are higher than most other types of financial products like a traditional mortgage or a HELOC
The equity you hold in your home may go down as you accumulate interest
The Market value of real estate may change at any time.
your estate will need to sell the home or repay the divorce mortgage and interest within a set period of time when you die
A Divorce Mortgage must be repaid or the home sold to close the Divorce Mortgage within a set period of time.

Consider this scenario:

You own a $1,000,000 home with a $300,000 mortgage balance. The remaining equity would be 700,000 and in order to buy out the home, you would owe your spouse 350,000. With a divorce mortgage, you can access 65% of the home’s value ($650,000) using $300,000 to settle the existing first mortgage and the remaining $350,000 for to equalize the purchase from your ex-spouse.

In a divorce mortgage, the interest, legal fees and monthly payments are added onto the repayment amount that would be repaid in full after a maximum of 24 months. At that time, in order to pay off the divorce mortgage, you would either qualify for a traditional mortgage or the home would be sold.

A divorce mortgage is a transitional solution and a short-term loan. It’s important to recognize that the mortgage, repayment becomes due upon the borrower’s relocation or passing. Additionally, borrowers must fulfill obligations such as property tax and homeowners insurance payments throughout the loan duration.

Divorce Mortgage Costs

Home Value	$1,000,000
Amount Borrowed	$650,000
Home Appraisal	$500
Monthly Interest Payments, Fees (legal & Lender)	$5411.25 (X 24 months)
Mortgage Repayment	$809,690

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