We know, we know… tomorrow is Valentine’s Day. What a terrible time for us to write about getting a divorce! But there’s never really a good time to talk about this subject, so we figured we’d get it out of the way now, before the international lovefest begins.
Getting married and buying a home are two of life’s major milestones. Unfortunately, marriages don’t always last forever. According to Stats Canada, 41 per cent of marriages end in divorce before reaching their 30th anniversary. It’s also unlikely that you’ll stay in the first home you buy forever. In the event that you are ever stuck in the situation of getting divorced and needing to figure out what to do with your mortgage, we’re here to give you a quick rundown of your options.
Sell Your Home
When you file for a divorce, your assets – including your properties and savings – will need to be divided. How you divide everything is something you can hopefully agree on with your former spouse, but one of the easiest solutions when it comes to properties is to sell anything you own and split the money.
With that being said, selling your home isn’t as cut and dry as you might think. If the divorce itself isn’t stressful enough, imagine having to sell in a less than desirable time, such as a buyer’s market. Not only will you and your former spouse need to work together and agree on an offer to purchase, your divorce will also need to specify how the sale will be divided, including how any fees and penalties will be paid.
And what happens to your existing mortgage, when you sell your home? You’ll need to contact your lender to be sure, but you’ll most likely have to pay a penalty to break your mortgage early, which is the greater of the interest rate differential (IRD) or three months’ interest. While you’ll split the equity that you put into your home, you’ll also have to split the expenses and any closing costs this incurs, including real estate commission, legal fees and disbursements.
Buy Out Your Former Spouse
If you have the money and you want to keep the family home for yourself, you’ll have to buy out your former spouse. This can be an expensive option, since not only will you have to buy out your former spouse’s equity, you’ll also have to start making the mortgage payments by yourself. If you want to go this route, there are two ways to go about it: you can assume the existing mortgage or refinance the mortgage.
Assume the Mortgage
By assuming the mortgage, you become solely responsible for making the mortgage payments on your original term. If you decide to assume the mortgage, you’ll need to complete an assumption agreement and a release of liability; this will free your ex-spouse from having any further liability for the property. You’ll also have to provide financial documentation to prove to your lender that you can afford to pay the mortgage. It’s important to note that not every mortgage is assumable, so you will need to confirm with your lender that this option is available first.
Want to know how much you can afford?
Use the affordability calculator to determine your mortgage affordability.
Refinance the Mortgage
If you want to keep the home but you don’t want to assume your current mortgage term, your other option is to refinance your mortgage. Although you’ll still have to buy out your ex-spouse’s equity, refinancing can give you more flexibility. For example, you could lower your payments by refinancing at a better mortgage rate. There are a number of forms you’ll want to know about, if you go this route, which you can read about in our original post on mortgage and divorce here. Just know that you will want to protect yourself and your property, if you choose to keep the home and refinance your mortgage.
No matter how old you are or how long you’ve been together, there is nothing easy about getting a divorce. And while thinking about what to do with your mortgage may not be a top priority at the time, you will need to deal with it eventually. We hope this post serves as a good starting point for anyone who finds themselves in this less than desirable situation.