Let’s start with some rather stark statistics so you understand that no one is immune from divorce. Divorce is omnipresent in our society; the sad reality is that nearly 67% of all couples who married after 1990 will divorce. Of those, 50% will divorce within 5 years. Whether living common-law or married, you will face the same challenges if you separate.
Even in a growing economy, it is often difficult and expensive to divorce or separate. No one wants to even imagine what it would be like during a recession or at a time like we are currently living through. If you are not in excellent financial health, a divorce or separation can be devastating. Having to sell the family home is often the result.
One of the major issues in a divorce is the family home. Any decision regarding it will be influenced by a number of factors, including the emotional attachment of family members to the property, proximity to your workplace, and the need to maintain a certain stability for your children.
The questions we usually ask ourselves in this situation are:
- Will the house be kept by one of its current owners? Which one?
- Do I have the means to keep the house and pay the mortgage alone?
- Will the bank agree to grant a new mortgage on the house with only one of the owners as the borrower?
In this blog post, we will address the various options available to people going through a divorce.
Selling the house
When there is a divorce, selling the family home is sometimes the only viable option. This scenario is common when a single individual’s salary is not enough to refinance the property or take on the existing mortgage. If the property needs work and you can’t afford it, you could opt for a second mortgage. This would allow you to complete the work required to maximize the value of the property at the time of sale.
How can I keep my house after the divorce?
There are many ways to keep the family home after a divorce. Unless otherwise agreed, the person keeping the house will have to pay the other owner half of the equity and then take on the existing mortgage.
The equity in your home is calculated by subtracting the amount owed on your home (e.g. mortgage balance, home equity line of credit balance) from the market value. Here is an example of how to calculate the home equity:
House value: $500,000
(– minus) Mortgage balance: $300,000
(= equals) Home equity: $200,000
You would therefore have to give your ex-spouse $100,000, which is the available equity divided by 2. If you choose to refinance, the amount to be refinanced would be $400,000.
Buy back your ex-spouse’s share with your savings
If you have enough savings, you could simply give your ex-spouse their estimated amount of equity. You will still need authorization from the bank to assume the mortgage on your own and relieve your ex-spouse of their responsibility for the mortgage. The bank will ask you to resubmit all the required documents (T4, proof of employment, etc.) to obtain approval.
Refinance with a bank (with or without a co-signer) in order to acquire 100% of the property
You could opt for bank refinancing to acquire your ex-spouse’s share in the house. We are talking here about traditional bank mortgage financing. You will therefore need to qualify for a mortgage as if you were a new customer. If your salary is insufficient or if you have a bad credit rating, you could try with a co-borrower. A family member is often ideal.
- Refinance with a private lender in order to acquire 100% of the property
If you have good equity in your property but your financial situation or credit rating does not allow you to refinance your mortgage with a bank, there is another option: a private mortgage. Since approval is based solely on the equity in your property, you avoid having to go through a difficult refinancing process.
Such private mortgage loans are often for a short period. This is generally a 12 to 24-month transitional loan that enables you to stabilize your financial and family situation in order to benefit from more options later.
How can I apply for a mortgage loan?
Apply online via our website or call us at 1 (877) 220-7738, extension 1.