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Since most couples have a
joint mortgage – one where both names are on the mortgage and title of the
home – when separation or divorce proceedings get underway, many wonder what
will happen with the home.
When the marriage comes to an end, there are two obvious
options concerning the home: 1) sell the property and split the proceeds
according to your agreement and go your separate ways; or 2) one person buys
the other party out of the mortgage and the title of the property.
The first option is a straight-forward transaction where you
put the house up for sale, sell and split the proceeds. The second option,
however, is slightly more complicated.
The decision between the options is a personal one borne out
of the specific circumstances of the parties involved. Perhaps there are
young kids involved that need to stay in the house, the market is down and
there will be a loss on the property that neither party can afford, one party
can afford to buy the other party out, etc.
Once the decision is made, how do you go about buying the
other person out of a mortgage? Well, essentially, you’re refinancing
your mortgage using a single income (the person who’s buying the other party
out of the house) and qualification, versus the original purchase, which was
based on joint income and qualification.
If you’re the one buying your partner out, the first step is
to ensure that you can afford the mortgage payments.
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This is imperative because the lender will ask for proof that
you’re capable of covering the mortgage in order for you to apply on your
own. In addition to covering the mortgage amount, you’ll have to come up with
whatever dollar amount you have agreed on to buy the other partner out. This
may come out of the equity in your home if it’s sufficient.
In essence, if you can afford the mortgage on your own, the
most common means of buying out your partner post-separation and transferring
title out of the joint name and into your name, is to refinance. I can help
you through each step of this process. And although the maximum refinance on
a home is 80% of the appraised value, given the unique circumstances
surrounding separation, you can often refinance up to 95% of your home’s
value.
If you’re not in a financial position to buy your ex-partner
out of the house, and you agree to both stay on title and have payment
arrangements, there’s one warning to be taken very seriously – just because
one person is responsible for the payments (even with a court order), if the
mortgage goes into default, both parties on the mortgage will be affected.
The most important piece of advice when dealing with a
mortgage during a separation is to become informed. Know your options, talk
to professionals about your options, and make an informed decision regarding
your home and mortgage.
As always, if you have any questions about the information
above or your mortgage in general, I’m here to help!
1-888-755-1126
Harmonymortgage@gmail.com
HarmonyMortgage.ca
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