The challenge: Divorce and Mortgage Options
When we tie the knot with our soulmate, we assume it’s going to be forever. It’s pretty much written in the vows. Unfortunately not all marriages have fairytale endings. In fact, a very significant amount of marriages in Canada end in divorce. The most recent data suggests 38 per cent of all marriages in Canada don’t last until death. The average marriage lasts 14 years, with 42 per cent of divorces occurring in marriages lasting between 10 and 24 years.
The reasons for the divorce rate are many and complicated and not really necessary to discuss here.
What we do know is, divorces can get ugly and be costly for both individuals involved. And if the marriage is years old, there’s likely a home or property that gets caught in the middle.
A typical divorce scenario sees that when the couple breaks up, the matrimonial home is sold and what’s left over is split. In almost all cases, even when one party wants to keep the home, the lawyers, the banks and the professionals always suggest selling the home. It makes sense, since most couples get a mortgage they can afford together, not on their own. But if the home is full of memories, or children are involved, it can be an extremely painful situation.
The solution: the Spousal Buyout Program
There is a unique alternative very few professionals even know exists.
All three of Canada’s mortgage insurance providers, Canada Mortgage and Housing Corporation, Genworth Financial and Canada
Guaranty, offer what’s called a spousal buyout program.
This program allows one party to refinance the matrimonial home up to 95 per cent of its appraised value, and pay out any debts related to the marriage.
Traditionally, you can only refinance on an existing mortgage up to 80 per cent of the appraised value.
The program is considered a purchase, so all the requirements and qualifications needed in a traditional mortgage still apply. In this case, you’ll also need a purchase agreement and a separation agreement with all the debts and payments spelled out.
The spousal buyout program is a one-time opportunity. It can be used to pay off other debts outside the separation agreement, but it depends on which one of the three insurers you use.
Even with a helpful loan-to-value ratio, some people still can’t afford to take on the home on their own. The program also allows people to bring on a cosigner, often a new partner or family member.
At the end of the day, divorce is unfortunate. The programs allows you to keep your home and your kids can stay where they’ve grown up. And that makes the situation at least somewhat more bearable.
If you do find yourself in a divorce and you’re not sure what to do about your home, contact us before making any decisions. We can help!