Steering Your Mortgage Through a Separation or Divorce
Finances can be a sticking point between spouses even at the best of times and during a separation or divorce; they are doubly challenging.
When a marital 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, please find below some basic information and guidance.
Your Emotions During Separation and After Divorce
As you prepare to navigate into the mortgage waters, it is important to leave your emotions on the shore. Lenders unfortunately don’t concern themselves about your personal issues. They are not concerned whether you or your spouse can or can’t agree on the details as who should pay what and how much of the monthly mortgage payments are who’s responsibility.
The lenders main concern is protecting their own interests. They expect that mortgage payments to arrive on time from the parties who are registered on property’s 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 and will affect requalification for several years.
Assess the Property’s Value
Before the two of you can make any decision on 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. This appraisal can also be used in the case of a spousal buyout. If you hire an independent appraiser, the banks may not be able to use their appraisal and 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. To avoid this The Wilson Team can provide you with a certified appraiser who meets the required criteria.
Once you have a qualified appraisal, you can now 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 appraised value.
As 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 if 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 it is extremely important to have the division of all homes dealt with before applying for a new mortgage. We can help you with every step and planning that is required.
Your Options During Separation and After Divorce
Contact your current mortgage lenders and find out what the exact balance owing on your current mortgage and any debts registered against the home. It is also imperative to request all of the details on your mortgage, such as:
- Current rate
- Product (variable or fixed)
- Term (1 -5 years)
- Remaining Term (how much time is left)
- Real Estate Fees (if you sell it’s an average of 5% of the sale price)
SUPER IMPORTANT – what 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.
Alimony – Spousal Support
Should you be the one who is paying alimony or support to your spouse then most lenders consider that as a monthly debt. This can have a very large impact on what you can afford with bank mortgage. The Wilson Team specializes in separation and divorce mortgage solutions and 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 new mortgage borrowing by a minimum of 20-40%. We often end up speaking with clients who feel very defeated by the terms of a new pre-approval amount offered by their banks. This is 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 various options of keeping your existing home, offering a buy-out or selling and purchasing another home. Now, it’s time to decide how to handle that debt.
Selling Your Home
With every ending starts a new beginning and 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, this allows you to begin anew without the memories of good times and bad confronting you daily.
Assuming the Mortgage
Remember the appraisal section? If you’re considering offering your spouse a buy-out or being bought-out, that appraisal can be used to determine that amount. Again, you can hire your own appraiser, but the same issues as discussed before may come up and you may end up paying for another appraisal needlessly. We can help you and set you up with a certified appraiser.
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 such as: 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.
- 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 differs on how they will utilize and calculate support, child tax credits and alimony. It’s vitally important to work with an experienced mortgage broker who knows which lenders will work with your situation. Once you decide on this option and pursue it, as the “selling or bought-out” partner, you will require 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, the options listed above may be 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 work. In time you’ll have enough equity built up to sell the property and you’ll 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 5% equity in your home. In other words, 95% of equity is available to you to address your obligations to your partner. If there is 25% 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:
- Offer to Purchase and/or Sales Agreement,
- Separation Agreement, and an Appraisal,
- A commitment for one of you to remain in the home, and
- Ensure that 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 things you’ll ever go through. It’s a sad, hurtful and emotionally charged process. During this 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.