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What to do with your mortgage debt after a divorce

If you’re recently divorced or separated and own your home, it may be time to think about refinancing your mortgage.

There’s a lot to think about when managing your post-divorce finances. Further complicating the situation is what to do with joint assets like your home or other mortgaged properties.

Options for dividing your mortgaged properties

In general, you have a few options when divvying up your property assets:

  • Sell the property and share the profits with your ex.
  • Sell your share of the property to your ex.
  • Refinance the mortgage for sole ownership of the home.

Learn more about transferring home ownership in our guide here

Refinancing your mortgage to buy out your spouse

When one spouse wants to keep the family home, it’s common for that person to refinance the existing mortgage. Refinancing allows you to take your ex’s name off the mortgage, and means you’re effectively taking on the sole financial responsibility of paying the mortgage. It also means you’ll be the sole owner of the home.

To refinance your home, you may need to provide to your lender:

  • Records that show you have the money to pay out your ex if you don’t own enough equity in the home.
  • Proof of an excellent history of repayment on your existing mortgage.
  • A recent property appraisal.

Can I take possession of an existing mortgage?

If you don’t want to go through the process of refinancing, some lenders will consider allowing you to assume the existing mortgage outright. This means that you’d take over the mortgage and its payments. However, you’ll need to provide proof that you’re financially able to cover the monthly mortgage on your single income, and you’ll need to find a lender that allows this.

Seek the help of a mortgage professional before deciding on this option.

Looking to refinance? Compare mortgage lenders in Canada

Name Product Interest Rate (APR) Loan Term Min. credit score Provincial availability
Tangerine Mortgages
2.14%
5 Year Fixed Rate
620
All of Canada
Get competitive rates and make annual lump sum prepayments up to 25% of your original mortgage amount with a Tangerine mortgage.
Loans Canada Mortgage Refinancing
1.79%
5 Year Fixed Rate
300
All of Canada
Loans Canada connects borrowers with a mortgage broker in their area. Bad credit, EI and CERB applicants are considered.
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Compare up to 4 providers

How important is my home’s current value when refinancing?

If your lender estimates your property value at a lower figure than anticipated, they could decline the mortgage. In that case, you may be prevented from dividing the property successfully, or the spouse being removed from the home ownership could lose out when being bought out by the spouse keeping the property.

Unfortunately, there is no way to control how a lender will estimate your property value – and there’s no way to control the market conditions which can determine the value of properties across the country. Before you submit your refinancing application, ask an experienced mortgage broker if they can obtain different estimates from various lenders. With this information, you can apply with the lender that has the most satisfactory estimation for your property. But be aware that requesting too many credit inquiries could possibly damage your credit score, making it more difficult to qualify for a new mortgage.

How much money am I able to borrow with my new mortgage?

If your history of repayment has been excellent and you meet your lender’s guidelines, it could be possible to get a mortgage for up to 95% of the value of your property. You will have to pay mortgage insurance (also known as CMHC insurance) if you borrow more than 80% of the value of your property.
Here’s what you need to know about mortgage insurance

Can I use child support payments as income to get a mortgage?

While some lenders will accept your child support benefit as income when applying for a mortgage, others consider child support payments an unreliable source of income.

Acceptance of child support as income could further depend on:

  • Whether your mortgage is insured or not. Some lenders will accept child support as a form of income on an insured mortgage. Furthermore, some lenders will accept the Universal Child Care Benefit (UCCB) as an eligible form of income.
  • The age of your dependents. Most lenders require proof that you will be receiving child support for at least three years. That means if your children are 15 or older, your child support payments may not be accepted as income since you won’t be receiving them in a few short years.
  • How long you’ve received child support. Lenders will typically request at least six months of child support statements in order to determine how reliable of an income they are.

You’ll need to speak to your lender or mortgage broker to find out whether your child support payments are an acceptable form of income.

What if I’ve neglected my mortgage payments?

Amid the lengthy proceedings and emotional chaos that comes with divorce, it’s understandable that you could miss a payment or two on your mortgage. But if you plan to refinance or assume your existing mortgage, it’s a good idea to continue paying your share in full and on time.

Skimping on payments doesn’t reflect well on your credit history and could make it harder for you to apply for refinancing – or any credit product for that matter. Many mortgage lenders won’t refinance a mortgage unless the borrower can show timely repayments for six consecutive months.

Will I have to pay taxes to transfer ownership?

When transferring ownership of a property, you’ll have to pay land transfer tax. The tax you’re charged will depend on your province or territory of residence. In Alberta and Saskatchewan, there is no land transfer tax – instead there is a registration fee.

Keep in mind that your property could be valued much higher now than when you purchased it, resulting in higher taxes than you originally paid.

To learn more about the taxes and costs you’ll face, contact a mortgage specialist.

Seek the assistance of a professional

As with all real estate decisions, talk to your lawyer, a tax professional, mortgage specialist or another expert to determine your specific responsibilities when assuming financial responsibility for your property during or after your divorce.

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