Things in life can happen. Dealing with money, your mortgage, refinancing, and divorce can be challenging. I have met several clients who weren't aware of all the options available to them during this difficult time.
I wanted to provide a resource so that you are more informed about your options on how to refinance your mortgage while going through a divorce.
During a divorce or separation, it is possible to access up to 95% of your home's value less your mortgage to buy out your ex (spouse). Called the Spousal Buy-Out Program, this program is only available once, when you are negotiating the split of matrimonial assets and removal of your ex from your home's title.
Let's take a look at the spousal buy-out program and the requirements. After that, we can review some client examples and related questions.
Refinance Your Mortgage, The Spousal Buy-Out Program
The spousal buy-out program is a specific program that allows a couple, married or common law to buy out the other from the home that they own together.
The requirements include the following:
- The couple can access up to 95% of the value of the home
- The home must be in both names (that is, both parties must be registered on title)
- A signed, finalized separation agreement or divorce agreement
- consolidated matrimonial debt can be included if joint and listed in the agreement to be paid out
- the buy-out, equalization payment, can only go to the departing spouse and must be specified on the agreement.
In addition to these requirements to qualify for the program, the spouse who plans to buy-out the other must qualify for the mortgage on their own. That is, they must have sufficient income to cover these payments, any agreed-upon alimony or child support payments, and all other debt repayments.
How is this refinance program (spousal buy-out) while going through divorce different from a regular refinance program?
A spousal buy-out is different than a normal mortgage refinance because you can get access to equity up to 95% of the value of your home. If you applied to refinance your current mortgage, the maximum that an "A" lender can offer is up to 80% of the value of your home.
An "A" lender would be one of Canada's big 5 banks or a Credit Union or Trust Company or Monoline Lender. The interest rates offered are very competitive when you arrange to finance with an "A" lender.
To get access to 85% or 90% of the equity in your current home, you would have to seek financing with a "B" lender or Private Lender. Interest Rates will be higher and there would be additional fees.
The spousal buy-out program allows you to work with an "A" lender and receive very competitive rates. Because this program is different from the normal mortgage refinances, not everyone is aware of it.
Mortgage Refinance During Divorce, Client Example:
I met a client a few years ago. He had been separated from his spouse for a few years. During the separation, they split some of their assets and at that time he approached his bank to remove her name from the title. He also thought he could access some cash to buy her out.
When he spoke with his bank, they did not tell him about the spousal buy-out program. They advised him that he could only access up to 80% of the value of his home. This amount was close to what he thought needed, so he agreed.
His bank set up a mortgage for $400,000 and he received approximately $25,000 cash to pay his ex. The divorce wasn't finalized but he now had some cash that he could use to finalize everything.
After a year, they finally came to terms and he had to pay his ex $75,000. He had $20,000 cash but nowhere near $75,000.
I reviewed this client's info and there were a couple of options. The spousal buy-out was no longer available. He had done that already. She was no longer on the title, therefore he didn't meet the minimum requirements.
We could find a private lender to provide him with a second mortgage for the difference of $50,000. The interest rate for this second mortgage would be 12% to 16% and there would be fees.
This wasn't the ideal solution. During our discussion, he disclosed some other assets and we were able to find a solution using these assets instead.
Had his bank known about the spousal buy-out program, then he could have waited to refinance his home until the agreement was finalized. He would know how much he needed to pay. He could then access up to 95% of his home's value at preferred interest rates to buy-out his spouse.
If you are in this situation, then it's really important to speak with a professional who has access to multiple lenders and a vast array of financing programs, like the spousal buy-out program.
Connect with us if you have questions about how this program works and we can review your specific situation.
Another Client Example of buying out an ex from your house.
I helped a client to buy her ex out of her home while going through a separation. I thought her situation could help you.
My client owned a home worth $400,000. The mortgage balance was $300,000. Her husband had moved out 6 months ago and was making regular monthly payments to her.
Her kids were going to a school close by and she didn't want to sell this home and uproot her kids. She thought that they were already going through enough.
She was finalizing the separation agreement with her lawyer and it looked like she had to give her ex $60,000 to settle all their assets if she kept the house.
She didn't have enough employment income to qualify for a new mortgage of $360,000. She knew she could afford the payments because she was receiving Child Tax Benefit and her husband had been making regular monthly payments to help with kids, etc.
The payments he was making to her were close to the amount that was agreed upon in the separation agreement. These "support" payments were also deposited into her bank account every month.
Because there was a track record and documentation to confirm that she received this additional cash flow, we were able to use this to help her qualify for the mortgage she needed.
When the separation agreement was finalized, she set up a mortgage for $360,000 and paid her ex the $60,000. The payments were well within her budget. Her kids were able to go to the same school with the same friends and keep the the same bedrooms.
Without this program, this client would have either sold her home or had to get a personal loan with much higher payments to pay out her spouse.
Refinance Your Mortgage During Divorce, Related Questions:
How can I get my ex off my mortgage without refinancing?
I had a client ask this question recently. This client had gone through a divorce several years ago. He and his ex had settled everything, he owed her no additional money. She was happy to be removed from the mortgage and from the title to the home.
To get an ex off your mortgage and property title, you would first approach your mortgage lender. You complete an application, provide documents to confirm your income and your lender will check your credit. Once approved for the mortgage, your lender will remove your ex from the mortgage.
When your ex is not on the mortgage, a solicitor or notary can then remove your ex from the title. If you are separated and not divorced, you should also have your ex sign a dower waiver that can be registered on the title to your home. Ask your lawyer about this document.
I have worked with many clients who have this type of situation. They went through a separation and divorce and forgot to have their ex removed from the title and the mortgage.
As you can see from my explanation above, the process is fairly straight forward, provided you qualify for the mortgage. If you don't qualify for the mortgage with your bank, then you may have to seek financing from another lender or alternate lender.
Can I remove my ex-wife from my mortgage?
This question is similar to the question above but doesn't quite clear whether or not additional funds are required. I'll answer the question, then we can consider this question from two perspectives.
You can remove your ex from your mortgage provided you can qualify for the mortgage. To remove an ex, you complete an application with your lender and provide income confirmation documents. Your lender will check your credit and qualify you for the mortgage. Once approved, your ex will be removed from the mortgage.
You can then have your ex removed from the title to your home. Your ex will have to sign, therefore if your ex wants money from you, then they are unlikely to sign to be removed from the title unless they get paid out.
To Remove Your Ex-Wife From Mortgage, You Owe Nothing
If you don't owe any funds and your ex is willing to sign documents for you, then you can go through the application process with your bank and get approved. You then go to a lawyer to have the title to your home changed from both of your names to your name only. Your ex must sign some documents with the lawyer.
To Remove Your Ex-Wife From Mortgage, Still In Dispute
If you are still in dispute with your ex, you can have the mortgage changed to your name but changing the title to your home may be more difficult.
To change the mortgage, like described above approach the bank and go through the qualification process.
You should speak with your lawyer once your mortgage is in your name to get options to have your spouse removed from the title.
How do I get my name off a mortgage after divorce?
This question usually comes up with the spouse who has left the matrimonial home wants to buy their next home. When you go through the qualification process to purchase a home, your current debts, including any mortgages are included in the qualification calculations.
To get your name off the mortgage after divorce, there are two options. 1. You sell the home when the mortgage is paid out you are removed. 2. Your ex must apply with the mortgage lender to qualify on their own (or with a co-signor). Once they are approved, then you can be removed from the mortgage and title.
If your ex doesn't qualify on their own, then a co-signor would be allowed to help your ex to qualify on his/her own. Once the application with a co-signor is approved, then you can be removed from the mortgage and title.
As I described at the top of this article, it's best to go through this process during the process of getting divorced. If additional funds are owed to you by the spouse who lives in the home, then that money can be directed to you through the spousal buy-out process.
What happens to a mortgage when you get divorced?
I often hear this question when a couple is going through separation and divorce and one party has moved out or is in the process of moving out.
Going through a divorce does not affect the relationship you have with the lender. When the mortgage was signed, every person on the mortgage agreed to make the minimum required payments until the end of the contract or the mortgage is paid. Therefore, the mortgage payments must be made until the mortgage is paid out.
You can negotiate with your spouse to pay a certain percentage of the mortgage payment, but if they don't pay their portion, you are still required by the lender to cover the full payment.
If the mortgage payments or any other debt payments go into arrears while you are going through a divorce, then your credit will be affected.
Who pays the mortgage during a divorce?
This question is similar to the question above. I've had many clients tell me that their spouse is responsible for the mortgage payments or this debt or that payment. So, who is responsible to pay the mortgage during a divorce?
If your name is on the mortgage document, then you are responsible to pay the mortgage during a divorce. Whether you make arrangements with your spouse (ex) to cover half or a third of the payment, from the lenders' perspective you agreed to make the full payments every month.
on a monthly basis.
If your spouse pays less than was agreed between the two of you, then you must cover the shortfall. If your payments are late or if the full mortgage payment isn't made, then your lender can foreclose.
Can a mortgage be transferred in a divorce?
When clients ask this question, they are referring to one of two things.
- Can a mortgage be transferred to another bank if I'm going through a divorce?
- Can a mortgage be transferred from both our names to my name in a divorce?
During a divorce, you can transfer your mortgage to another lender provided you qualify and all people who are on the mortgage and title sign for the transfer. If you wish to transfer from two names to one name, then this is also possible to provide all parties agree and sign. Before doing this transfer, consider all your options.
If you want equity out of your home to pay your spouse, then you must review the requirements for the spousal buy-out program that's described above. If you transfer the title from both names to one name, then late realize you need to get some equity to pay off your spouse, then you won't qualify for the spousal buy-out program.
I described the details above before you consider a transfer of title from both names to one name, look at all your options. One of the requirements of the spousal buy-out is that the title must be in both names when you apply for this program.
I always encourage my clients to speak with their lawyer or mediator as well as a qualified mortgage broker. When you negotiate aspects of your finances, you want to ensure that you will qualify and that it's possible to do what you want to do.
How to buy your ex out of the house?
This question is related very closely to our main topic. If you want to know how to buy your ex out of your house, then you must start the process in the right order.
To buy your ex out of your home you can utilize the spousal buy-out program. You can access up to 95% of the value of your home less the current mortgage, provided: 1. you are both on the title, 2. you have an agreement in place, and 3. you qualify on for the new mortgage on your own or with a co-signor.
The spousal buy-out program can help you to access some of the equity in your home so that you don't have to sell. The equity that you access must go to your ex. You can't access additional equity for your own purposes.
It is also possible to use some of the equity to pay off debts provided that everything that is to be paid is documented in your separation or divorce agreement.
How do I buy out a house from a spouse? (Can you buy your spouse out of the house?)
This question is a variation of the questions that we have been reviewing here. The spousal buy-out program is the best solution as long as you meet the requirements and qualify.
To buy your spouse out of the house, you can either refinance your home or you can use the spousal buy-out program. To refinance you can access up to 80% of your home's value less the mortgage. The spousal buy-out program allows you to access up to 95% of your home's value less the mortgage.
If you don't need to access the equity beyond 80% of the value of your home, then the mortgage refinance option is a better solution. This option doesn't have strict requirements related to the use of the money and who gets the money.
If you need to access beyond 80% of the value, then the spousal buy-out program will allow you to get access to additional funds to pay to your spouse.
The specific requirements are summarized at the beginning of this article.
If you are going through a separation or divorce and want to know what mortgage financing options you have, it's important to speak with a broker or a lender that has access to all the options.
There is a spousal buy-out program that many lenders (but not all) will offer to help you access the equity in your home to pay out your ex.
This can help you to say in your home so that there is less interruption to your kids' lives, their friends and school.