Of Prime Interest: Get mortgage advice before the divorce

Many couples assume that the house must be sold but that is not always the case.

  • Sep. 30, 2015 8:00 a.m.

When a couple decides to divorce the financial assets they ave accumulated while together must be fairly divided and in many cases the largest shared asset is the matrimonial home.

Many couples assume that the house must be sold but that is not always the case.

A few years ago we all used to be able to access 95 per cent of the equity we had in our home. That limit was changed to 80 per cent; however, in the event of a divorce or separation or dissolution of a partnership you are able to stay in your home by purchasing your house from your ex-spouse or partner for up to 95 per cent of the existing value of the home.

With the spousal buyout program it is possible to, in essence, refinance the property to 95 per cent by way of one partner buying out the other with the equity in the home.

The two parties must both be on title and currently in the process of a separation where one will be keeping the property. He or she, upon qualification, will be able to purchase the home financed up to 95 per cent of the current value.

How is the down payment created?

In the case of 95 per cent financing the down payment is created from the existing equity.

As an example let’s say the existing home is currently valued at $500,000. The new financing of 95 per cent equates to $475,000 and the existing $25,000 creates the down payment.

Any existing mortgage must be paid from the new mortgage funds. The excess can be used to pay out the partner, pay off debt or if 95 per cent is excessive we can assist you in figuring how much you will need.

A copy of the Offer to Purchase along with documents to confirm the sale price and the transfer of title will be a part of the transaction.

A full appraisal to determine the value is also required.

As these mortgages are high ratio (less than 20 per cent equity) they must be insured. If the mortgage was previously insured it is quite possible you will only pay a small portion and top up the existing premium.

In the case where the refinance is 80 per cent of the value of your home or lower, there would be no mortgage insurance.

The new mortgage can include matrimonial debts if they are listed on the separation or divorce agreement. Prepayment penalties and fees can also be included. This of course will only apply if there are sufficient funds to cover them.

CMHC also allows for the dissolution of a relationship which includes friends, relatives etc.; however, in this case there cannot be any debt, prepayment penalties or fees included in the new financing.

A spousal separation mortgage allows for a buyout up to 95 per cent of the value and can provide a favourable and acceptable resolution in difficult circumstances.

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