Divorce and Separation Mortgage
Steering Your Mortgage Through a Separation or Divorce
Finances can be a sticking point between spouses at the best of times. So during a separation or divorce they are doubly challenging.
When a split occurs, there is a discussion about divvying up debt equitably. Given that a mortgage is often a couple’s largest joint debt, it’s important to determine how to handle it. Before you talk to us at the Wilson team about the appropriate divorce and separation mortgage solution. We’d like to provide you with some basic information and guidance.
Your Emotions After Divorce and Separation
As you prepare to dive into the mortgage waters, it is important to leave your emotions on the shore. Lenders unfortunately don’t concern themselves about personal issues. They are not concerned whether you or your spouse can or can’t agree on details. Such as who should pay what and how much of the monthly mortgage payments are who’s responsibility.
The lender is only there to protect their interest. Which is collecting the mortgage payments and they simply expect them to arrive on time from the parties who are registered on title. It’s a business transaction. Take a deep breath and handle it fairly. It is imperative to keep the credit rating up during this process. Missing any mortgage payments will hinder you from applying for the next mortgage. There are serious consequences in missed mortgage payments for requalification for the next few years.
Assess the Property’s Value
Before the two of you can make any decision about how to move forward, you’ll need to know the current value of your property. An appraiser can determine its worth for you without bias. The Wilson Team will be able to provide you with a certified appraiser. This appraisal can also be used in the case of a spousal buyout. If you seek an independent appraiser, then the banks may not be able to use this appraisal. You may end up paying for a second one. You also may end up hiring one that is not familiar with the neighbourhood or property type.
Once you have that information, you can determine the amount of equity you, as a couple, have in the home. By subtracting the total of your outstanding mortgage debt and any secured line of credit balances you have from the property’s value.
Because Ontario divorce laws mandate equal division of assets (according to the rules laid out by law), you should put a separation agreement into place. This is to ensure that your home equity is considered. Most financial institutions will not move forward with any new mortgage when the matrimonial home has not been dealt with in writing. If your name is on title, it is considered 100% your debt! Even if two people are on title or the other person is making all the payments. Each person is responsible for 100% of the debt in qualifying for a new mortgage. The bank also does not want to be part of any legal battles for ownership. So its important to have the division of all homes dealt with when applying for a new mortgage. We can help you with every step and planning that is required.
Your Options After Divorce and Separation
You need to call your current mortgage lenders and find out what the exact balance owing is on the home. Furthermore find out any possible debts registered to the home. It is also imperative to request all of the details on your mortgage. Such as the current rate, product ( variable or fixed ), term ( 1 -5 years ), amortization, remaining term ( how much time is left ) , real estate fees if you sell ( average of 5% of the sale price ). Request most important which is the mortgage penalty if you are breaking the mortgage. Your bank may not have the spousal buy out product! You may need to call a broker. She can place you with a lender that allows you to borrow more than 80% of the value of the home.
Should you be the one who is paying alimony or support to your spouse then most lenders consider that a monthly debt. This can have a very large impact on what you can afford with the banks. The Wilson Team specializes in separation and divorce mortgage solutions. We can provide you with a solution that allows you to change the way most banks look at those payments. This solution has been able to increase your new mortgage borrowing by a minimum of 20-40%. So often we end up speaking with clients who feel very defeated. In terms of a new pre-approval amount given by their banks. It is just because that bank does not have the guidelines to change the calculations of the support payments.
You now know how much your home is worth. And how much it would cost you to pay off the bank. We can walk you through the options of keeping the existing home. With a buy out or selling and buying another home. Now, it’s time to decide how to handle that debt.
Selling Your Home
With a split in the offing, you may want to sell your home. Pay off the mortgage and move on with your share of the proceeds. As difficult as this may seem and as much as you may love your humble abode, it will allow you to begin anew without the memories of good times and bad confronting you daily.
Assuming the Mortgage
The two of you may agree that one partner will remain in the home. And simply assume the remaining mortgage payments. When children are involved, this isn’t uncommon. Since no cash changes hands, it is only feasible when there are enough other assets to settle the financial differences between you.
The partner who is leaving will need a release of covenant from your mortgage lender. Also, be prepared for minor legal fees and possible processing fees.
This option may provide familiarity for your children so that you don’t feel you need to change and uproot everything. Including schools, child care, friends and family etc.
Refinancing Your Home
One of you may wish to purchase the other partner’s share of the home. Especially if children are involved and stability is paramount.
If you choose this route, be aware of the costs that may be associated with it. Legal fees and a potential discharge fee from your lender. In addition, it is incumbent upon the partner keeping the home to prove they can manage the mortgage payments. This requires:
- An up-to-date record of mortgage payments;
- A sound credit history and a positive credit score;
- Solid income – if you will be receiving alimony and/or child support, this can boost your income; the Wilson team can help you assess your finances as a lender will; and
- Agreement between the spouses that one will sell to the other
Every lender is different on how they will utilize and calculate support, child tax credits and alimony. So its important to work with an experienced mortgage broker who knows which lender will work with your situation. Once you decide on this option and pursue it, get written confirmation that your name is no longer on both the mortgage AND the title. This is to ensure that you are no longer legally liable for payments.
Renting Your Property
If you are in the unenviable position of not having much equity in your home. Then the options listed above are unavailable to you. However, you CAN consider renting the property at a fair market value to cover the mortgage and property taxes. You’ll need to have a joint venture agreement drawn up to make this workable. Eventually, you’ll have enough equity built up to sell the property and will be able to shed this joint obligation.
If you are considering refinancing the home so one of you can buy out the other’s share, the Wilson team is here to help. Understanding the ins and outs of mortgages is our specialty.
The Canadian government allows you to buy out your partner if you retain up to five per cent equity. In other words, 95 per cent of equity is available to you to address your obligations to your partner. If there is 25 per cent equity in the home, you can use all but five per cent of that to settle the debts of your relationship.
In order to make this a reality, you’ll need:
- an Offer to Purchase and/or Sales Agreement, a Separation Agreement, and an Appraisal;
- a commitment for one of you to remain in the home; and
- to ensure the person assuming the mortgage and title has adequate income to be approved to do so.
Get in Touch with Canada’s Divorce and Separation Mortgage Experts
The Wilson Mortgage team is here to help you make this option possible. There are various ways to use alimony, child tax credits and child support to appeal to lenders. Give us a call and we’ll help you work out the details.
There is no doubt that a separation or divorce is one of the hardest steps you’ll ever take. It’s sad, hurtful and emotionally charged. During such a stressful time, it’s important that you have the support of professionals you can trust. The Wilson team is here to give you honest, useful information and advice on Divorce and Separation Mortgage solutions.