Getting separated or going through a divorce is one of the most stressful life events. In addition to the emotions involved with a separation, there are several things to consider and act upon relative to your property and debts. The biggest asset and debt for most couples is their family home and mortgage.
The following is a simplified look at your options with respect to dealing with the matrimonial home.
Sell
In some circumstances, it just makes sense to sell the matrimonial home, pay out all financial responsibilities and start over. Selling provides many couples with closure in a legal, financial and emotional sense. It can also provide each person with a down payment for their next property or cash flow needed for a new start.
If selling the matrimonial home is your best option and you are looking to purchase another property, keep in mind that you will need to qualify for a mortgage on your own and have at least 5% of the purchase price from your own funds as a down payment.
Spousal Buy-Out
In some cases, it may make sense for one of you to keep the matrimonial home. Staying can help to minimize further disruption and upset to the family and provide stability in an otherwise turbulent time.
In the case of separation or divorce, Canadian mortgage rules allow you to refinance up to 95% of the value of the matrimonial home. This is commonly known as a “spousal buy-out”, which allows you to purchase your spouse's interest in the matrimonial home and pay out joint debt given there is enough equity. (Equity is the market value of the home, less the debts secured against it.)
In order to qualify for a spousal buy-out:
Both of you must be on title to the home.
The spouse who is taking ownership of the home must have the ability to manage the mortgage payments and related expenses on their own and have good credit.
There must be a signed separation agreement setting out the terms of the buy-out and any support obligations.
Refinance
If the matrimonial home is in the name of only one spouse, that spouse may be able to refinance up to 80% of the value in the home in order to pay-out joint debt and make an equalization payment.
If you are currently going through a separation or considering separating from your spouse, you will need the expert advice of legal, real estate, financial, and mortgage professionals to assist you in exploring your options and making informed decisions.
Let the professionals at Professional Divorce Network assist you.
Lisa Klassen, Mortgage Agent
Real Mortgage Associates