With over 5 years in the mortgage industry and countless transactions, I’ve seen it all.  When 100% of my clients first meet me, they are under the impression that life is not going to change, and that they are committed to their home and mortgage for the long haul.

Statistics show that this is not always the case.  So what happens when a life event occurs, in this case, a separation or divorce?    

What Happens To Your Mortgage During A Divorce?

Separation is a tiring and dreadful process, to say the least.  There are a number of variables at hand, and even more decisions to make. These decisions can be difficult to understand and just as hard to manage.

One of the biggest, and sometimes most difficult, decisions to settle is what to do with the matrimonial home. Two separating parties, one house. Are there kids involved?  Do both parties want to sell to move on from the memories?  Does one party wish to remain in the house whether it be for the kids’ benefit or their own personal preference?  

The Spousal Separation Mortgage: Reducing Financial and Personal Stress

The Spousal Separation Mortgage option can reduce some of the burden surrounding this question.  It can also help ease the financial stresses of the separation, and allows one party to remain in the matrimonial home.

This special mortgage program offers greater flexibility than a standard mortgage refinance.  Typically, refinances can’t be used to access equity greater than 80% of the property’s value.  

For example:

Matrimonial property value - $400 000

80% of property value - $320 000

Existing mortgage balance - $310 000

In this example, a maximum of $10 000 ($320 000 - $310 000) can be withdrawn through a refinance that can be used to payout the departing spouse.

The Spousal Separation Mortgage is a unique program that allows the two homeowners to ‘sell’ the property to the party that is remaining in the home.  

Because this is positioned as a purchase and not a refinance, the transaction can go up to 95% of the property value.  

Using the same example:

Matrimonial property value - $400 000

95% of property value - $ $380 000

Existing mortgage balance - $310 000

In this case, up to $70 000 ($380 000 - $310 000) can be withdrawn to settle the financial obligation of the separation agreement.  This makes a big difference if the parties agree that each is owed 50% of the asset.

Smoothing Out The Separation Process With a Spousal Separation Mortgage: What Criteria Must Be Met?

This program offers great flexibility that can open doors and make the separation process flow much more smoothly. When determining whether a Spousal Separation Mortgage is best for you, it can be helpful to keep in mind that certain criteria must be met. This is because rather than being treated as a traditional refinance, it is treated like a property being purchased. 

  • Parties must be legally married
  • Both parties have to be on title of property (this can be arranged if not the case)
  • Must have finalized separation agreement showing division of assets (ie. home)
  • Completed purchase and sale agreement
  • Full appraisal required – This transaction requires a full appraisal to confirm property value seeing as though it is a private sale where both ‘buyer’ and ‘seller’ are directly connected deeming this a non-arm’s length transaction
  • Current mortgage statement to confirm mortgage balance owing
  • Remaining spouse will need to income qualify for the new mortgage amount.
  • No other debt payouts can be added to the separation agreement

If your priority is to remain in the matrimonial home, please reach out to your local Separation Superhero Mortgage Specialist to get started.  

About The Author:

Mike Shanks is a certified Mortgage Advisor with Verico Canada Mortgage Direct.  He uses a client centric, trustworthy, and efficient approach to providing effective financial solutions for his clients.

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