Most Canadian couples who marry and move into together will need a mortgage for their matrimonial home, placed with a bank or private lender. But when the relationship falters my clients often ask me: “If I want out of the marriage, can I get out of the mortgage too?” This is often followed by a corollary question, which is: “What if I want to keep the house?”
In an article in The Wall Street Journal recently, the author discussed some of the practical and financial considerations surrounding the re-financing of a home when a couple divorces and one of them wants to remain in the matrimonial home. The author addressed some of considerations that arise in the course of refinancing, based on U.S. mortgage laws and other legal requirements.
In Canada, the laws are roughly the same, and if you are in this situation there are a number of ways to finance or re-finance. Here are some of the options – along with some of the points that should be kept in mind:
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- You both keep your names on the original mortgage. In this scenario, you mutually decide that that your spouse moves out, but both of you keep your names on the existing mortgage. (The financial trade-off would be worked out as part of the divorce settlement). For practical reasons, this may not be a long-term solution. And conversely if it’s you that’s moving out, then it’s important to know that if your Ex stops making the mortgage payments, then the default is still attributed to you (even blamelessly) and can impair your credit score.
- You “buy out” your Ex, and re-finance. If you decide that you want to keep the home and buy out your Ex’s interest in the home, you can refinance the mortgage in your name only. However, in this scenario you need to have a quit claim deed prepared; this verifies that your Ex relinquishes his or her rights.
- You keep the home, and assume the entire mortgage yourself. In the cases where you want to take over the whole mortgage, the lender will have to consent – but not all lenders will agree to this. Moreover, lenders will have to be satisfied that you will be able to keep up the mortgage payments on your own, based on your income.
And one of the most important points to keep in mind – and one that couples who are on-the-rocks forget most often: Unless and until you are formally separated or divorced, you cannot unilaterally sell or encumber your matrimonial home – at least not without your soon-to-be Ex’s permission.
Do you have questions about how you can afford to keep the house in your divorce? Contact us for a free consultation.