No one enters into a marriage thinking that one day the relationship may end. Unfortunately, the startling statistic is that 38% of all marriages in Canada end in divorce.
Getting married and buying a home are two of life’s most significant milestones, so the likelihood of you and your spouse owning a matrimonial home is high. At the time of purchase, you likely never thought about how things would be divided if the marriage didn’t work out. Finances are a delicate matter for most couples at the best of times, and even more so during a separation or divorce, especially when it comes to deciding what to do with your largest joint investment.
Like the divorce itself, 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 as well as the net proceeds, assuming that neither of you want to remain in the home. Keep in mind that you’ll most likely incur a prepayment penalty to break your mortgage contract and 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 provide you with closure and a fresh start – on both a financial and personal level.
Depending on your financial situation, you may decide you want to stay in the house and release 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 determine you can swing it, 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.
Special equity buyout program
A popular program when one spouse decides to stay in the home is an equity buyout. Also previously known as a spousal buyout, this program represents an opportunity 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 funds often makes the difference between one spouse being able to buy out the other’s half of the home versus having to sell the home and find two separate places to live.
The money made available through refinancing is used to pay out your ex-spouse’s equity in the property. You’re still required to prove, however, that you’re able to carry the mortgage on your own as well as meet additional stipulations and qualifications, which must all be clearly stated in your separation agreement.
A divorce is a complicated and arduous process, and it’s important to work with a team of professionals such as a family lawyer and tax specialist, who’ll help you divide and settle your joint assets. When it comes to your house, you’ll want to work with a qualified mortgage agent who’ll help you weigh all your options so you understand what you can comfortably afford moving forward.
Have questions about your mortgage options during a separation or divorce? Answers are just a call or email away!