Mortgage buy–out from your partner
Ending a marriage is never an easy process. One of the potential complications that can come with doing so is how to split a jointly owned property. When a married couple buys a home, both people have equal rights to the property. When a marriage ends, the couple has to go through a mortgage buy-out process.
Buying out a mortgage can be the best way for a couple to determine how to handle the property moving forward. A spousal buyout program in Canada ensures that responsibility for the property is taken care of.
Knowing how to buy out your partner in a mortgage in Canada will help you determine how to divide up one of the most significant assets in many marriages. Keep reading to learn more about this process and how a home equity loan from Alpine Credits can help.
The basics of divorce mortgage buyouts
Before going through the process of a spousal buyout mortgage in Canada, there are some steps that both parties need to go through. Once it is over, the financial obligation of the property will be redistributed to how you and your former partner have worked out.
Step 1: Legal separation process
Before a marriage can end, couples must go through the legal separation process.
If there is a possibility that you and your partner will reunite, do not start the process of a divorce mortgage buyout. A legally binding separation agreement can be drafted when both parties are sure the marriage is over. This form states the custodial arrangement for any kids and spousal support.
This form also legally declares that a couple is getting a divorce. In Canada, a spousal buyout cannot happen without this agreement. This agreement will also explain how assets will be divided, including the mortgage. Having a separation agreement will make going through the rest of the divorce process legally binding and easier.
Step 2: Spousal buyout
Determine if either of you wants to keep the house.
Anyone whose name is on the mortgage is financially responsible for paying the loan. Before the marriage ends, both parties must decide how to handle the mortgage. If this decision is mishandled, it can impact your ability to buy a house in the future because you are still liable for the first mortgage. Ensuring the divorce mortgage buyout is completed successfully will help both partners financially.
Handling a buyout later can also lead to more charges, contributing to defaulting. Even if you are not considering buying a new property immediately, sorting out a spousal buyout is important for a healthy financial future.
Options for buying out a mortgage
When a property is involved in a divorce, below are the options to handle your financial obligation to the loan. What option you choose depends on what works best for you, your partner, and your needs.
Sell the property
Both partners can agree that neither party wants to live in the house anymore. No divorce mortgage buyout is needed in this case, and you can sell the house. You can use the profits from the sale to finish paying the mortgage. This is the simplest option and does not require a mortgage broker.
Rent the property
Sometimes, a home may not have any equity or may even have negative equity. This means that both parties owe more than their home is worth, resulting in buying out the mortgage not being financially advisable. Some partners choose to rent the house to cover the costs that the loan is worth. This can cover the mortgage and housing costs while waiting to complete a spousal mortgage buyout in Canada.
Buying out the partner
This process is relevant when one person wants to stay in the house while the other does not. The person leaving must be responsible for their share of the loan until otherwise released. There are two main ways to complete buying out a mortgage.
- Option 1: Release of Covenant—the remaining partner must requalify for a mortgage with their assets. Both parties must have cash and pay potential processing and legal fees.
- Option 2: Complete buying out a mortgage—the partner staying also needs to requalify the loan with their assets. A spousal mortgage buyout completed this way does not need to be split directly in half. If the home has sufficient equity, the partner wishing to keep it can take out a home equity loan to buy their ex-spouse’s portion.
Finding out how to buy out your partner in a mortgage in Canada depends on the best solution for you and your partner. Alpine Credits has been helping homeowners for over 50 years find solutions for their financial needs through a home equity loan, and we can help you, too.
Benefits of using a home equity loan to buy out your spouse in a mortgage
Simple qualification criteria
Qualifying for a home equity loan is simple, even if you have bad credit or irregular income. Couples in the process of getting divorced appreciate this, given how much red tape there is to navigate regarding other aspects of the split. With a home equity loan, the partner leaving the home can receive a lump sum of cash for their equity share.
Direct deposit into your account within days
Alpine Credits strives to approve home equity loan applications within 24 hours. Once approved, the money will arrive directly in your bank account within a few days, facilitating a speedy conclusion.
Competitive interest rates
Because home equity loans are secured, the interest rates are quite competitive compared to other loans, such as personal lines of credit. This makes them unbeatable for Canadian homeowners looking to borrow large amounts of money for any reason, including buying an ex-partner’s portion of home equity.
Mortgage buyout concerns
For most married couples, the house is their most expensive asset, which makes knowing how to buy out your partner in a mortgage in Canada so important. Both parties want to be sure that the process is handled correctly so that divorce proceedings can continue and that no unwanted financial obligations are lingering.
Common law couples, siblings, and friends can also go through this same process. The only major difference is that there is no requirement for a separation agreement to be filled out before buying out a mortgage can commence. A separation agreement is only for married couples who are currently separated and want to declare their intent to divorce.
In many cases, an appraisal is done on the property to ensure an agreement about how much it is worth now. This is not necessary for every spousal mortgage buyout in Canada. The maximum loan-to-value ratio cannot exceed 95% or the remaining mortgage plus equity. The property also must be the primary owner-occupied residence.
In knowing how to buy out your partner in a mortgage in Canada, you will also need to be aware of how much money can be withdrawn from the home. If required, the amount that is agreed upon in the separation agreement is the maximum amount of equity that can be withdrawn. It should be enough to cover the owner’s share of the property and retire any joint debts.
Any divorce mortgage buyouts can only be applied to buy out equity and pay off joint debts. It cannot be used for any renovations or remodels that the home may need. This agreement is laid out in the separation agreement.
A mortgage is a major financial obligation for many couples. When deciding how to split assets during a divorce or separation, both parties should be aware of how to buy out their partner in a mortgage in Canada. This way, both parties will know the best solution for them. Alpine Credits has been helping Canadian homeowners achieve financial freedom for over 50 years, and we continue to do so.
Frequently asked questions
You have several options in this scenario. Some former couples decide to sell the home, eliminate the mortgage, and go their separate ways. If one person plans on keeping the property, they can buy out their ex-partner’s portion of the equity and assume responsibility for what’s left of the mortgage.
You’ll need to work with your ex-partner and the mortgage lender to remove their name from the loan. If your ex-partner is entitled to equity in the property, you’ll need to address this as well. Your options include paying them a lump sum (which you can obtain through a home equity loan) or reaching some other arrangement.
If your ex-partner’s name remains on the mortgage, they’re equally responsible for missed mortgage payments and defaults. Therefore, removing their name from the mortgage is in their best interest. This will likely also necessitate a lump sum cash payment in exchange for the equity they contributed to building the property.
You’ll need their consent to sell if your ex-partner is listed as an owner. They’ll also be entitled to a portion of the proceeds. If you intend to sell without their consent, remove them from the home’s title.