Divorcing and a Mortgage

As a marriage reaches the end, it’s prudent to know your options when it comes to your home. 

Ultimately, the spouse that is keeping the home must qualify to carry the mortgage on their own.

Conventionally, in a divorce settlement, the spouse keeping the home will attempt to buy out the home using equity take-out.  The maximum amount in a traditional equity take-out on a first mortgage is 80% of the value of the home, as determined by an approved appraiser. If there’s not enough equity in the home, most cases result in the sale of the home and split in profits/costs. Selling can get expensive with real estate fees, bank mortgage penalties, legal fees, and moving expenses — never mind the added stress that this brings, especially if children are involved.

Alternatively, there is a Spousal Buyout Program offered through the Default Mortgage Insurers (CMHC, or Genworth), which allows the first mortgage to reach 95% of the value of the home. There is a premium capped into the mortgage for this program.  

This will allow a spouse to keep the home, avoid moving while help pay  the ex-spouse or partner their portion of the home’s equity. This program helps maintain some stability in an otherwise turbulent time.

Qualifications for the program include:

• You must be able to afford the mortgage with your sole income, and it cannot be more than 95% of the current value of your home.
• Both you and your ex-spouse or partner must currently be on the deed to the property.
• You will need a legal separation agreement and a purchase agreement prepared by your lawyers.
• All aspects of the new mortgage must be entered correctly on the separation agreement, including equity out for spouse, debts to be paid, and all other costs.
• You cannot borrow more than what the separation agreement states.

In some cases, we may be able to consolidate some debts to help with affordability, but these debts must be disclosed in the separation agreement.

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