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8 Oct

Planning a divorce? Advice to help you obtain a Mortgage

General

Posted by: Matt Evans

There are some very important steps that you can take that every divorcing spouse should know.    A big part of most couples net worth is the matrimonial home.  Each spouse is usually entitled to 50% of the accumulated equity, less any amounts contributed individually when the home was purchased.  This is usually accomplished by either selling the house or by one side buying out the other.  In either case there are some things you need to know to protect yourself.

The government has changed the rules of refinancing a home to only allow 80% of the equity to be accessed by the home owners.  However In the case of buying out a spouse from the Matrimonial home they will allow up to 95% refinances. 

Due to the huge variety of factors involved in financing a mortgage here are a few options we can look at.

  1. Retain your original mortgage:  Most people take this option even though it is the least desirable.  One person keeps the house but both names are still on the mortgage.  Both spouses are still legally liable for the mortgage
  2. Sell the house: Things to consider if you sell is the value of the home, payout penalties charged to close the mortgage early, Real estate fees and additional closing costs
  3. One spouse keeps the home and refinances the mortgage: This is an equity buyout.  Using high ration mortgage insurance through CMHC we can take out 95% of the homes equity often providing the equity needed to pay out the spouse.
  4. One spouse keeps the home and assumes the mortgage:  Assumable mortgages are less common now than 5 years ago however this process allows one spouse to assume the total mortgage and release the partner on the debt. 

Lets go over 3 important tips that will help you be able to qualify for a mortgage

First – One of the biggest setbacks I come across occurs when individuals fail to continue making bill and loan payments.  The hardest thing about this is it almost always hurts both parties and sets you up for years of credit repair.  These recent missed or late payments often result in credit scores forcing the client to accept prohibitively expensive rates or disappointing declines from banks.  The most important thing for your financial health is to continue making these payments.  Save your receipts as they can be reimbursed in settlement.

Second – Set up separate accounts and credit facilities as soon as possible.  Contact Equifax to check your credit to make sure that you have not missed anything.  It is important to have separate cards and loans in your name only.  Any payments missed on a joint card regardless of who is the primary affect both parties equally.

Third – Lenders cannot provide a mortgage without a full understanding of future financial obligations.  Make completing your separation and divorce agreements a priority.

While getting through a divorce is often  unpleasant and expensive, getting good mortgage advice can at least help save you money and unnecessary hassle. To ensure that you are left in the best possible position, try to involve your mortgage broker as early in the process as possible, because you’ll be surprised at the difference we can make, especially when given a little time.  

(Please note:  You should not make any final decisions related to your separation/divorce without the advice of a lawyer. Although I can explain the concepts, point you in the right direction and provide the appropriate mortgage advice, I am not a legal expert.)