Buying Out Your Partner in a Mortgage
Ending a marriage is never an easy process. One of the potential complications that can come with ending a marriage 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, one partner has to buy out the other one’s share of the property.
Buying out a mortgage can be the best way for a couple to determine how to handle the property moving forward. A spousal buyout mortgage 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 biggest assets in many marriages. Keep reading to learn more about this process and how 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: Before a marriage can end, couples must go through a separation. If there is a possibility that you and your partner will reunite, do not start the process of a divorce mortgage buyout. When both parties are sure that the marriage is over, a legally binding separation agreement can be drafted. This form states the custodial arrangement for any kids and spousal support. This form also legally declares that a couple is getting a divorce. A spousal buyout mortgage in Canada cannot happen without this agreement. This agreement will also lay out how assets will be divided up, including the mortgage. Having a separation agreement will make going through the rest of the divorce process not only legally binding but also easier.
Step 2: Determine if either of you want to keep the house. Anyone whose name is on the mortgage is financially responsible for paying the loan. Before the marriage ends, both parties have to 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 that the divorce mortgage buyout is completed successfully will help both partners financially.
Handling a buyout later can also lead to more charges that can contribute to you defaulting. Even if you are not considering buying a new property right away, sorting out a spousal buyout mortgage in Canada is important for a healthy financial future.
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 that the divorce mortgage buyout is completed successfully will help both partners financially.
Handling a buyout later can also lead to more charges that can contribute to you defaulting. Having a default on your financial record will also make it harder to get a mortgage in the future. Even if you are not considering buying a new property right away, sorting out a spousal buyout mortgage in Canada is important for your 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 and your partner and what your needs are.
1. Sell the property
Both partners can agree that neither party wants to live in the house anymore. In this case, no divorce mortgage buyout is needed and you can sell the house. Use the profits from the sale to finish paying the mortgage. This is the simplest option and does not require a mortgage broker.
2. Rent the property
In some cases, there may not be any equity or even negative equity in a home. This means that both parties owe more than their home is worth, making buying out the mortgage not financially sound. To cover the costs that the loan is worth, some partners choose to rent the house. This can cover the mortgage and housing costs while waiting to complete a spousal mortgage buyout in Canada.
3. Buying out the partner
This process is considered when one person wants to stay in the house while the other person does not. The person leaving needs to be responsible for their share of the loan until otherwise released. There are two main ways to complete buying out a mortgage.
- The first is when the partner is leaving requests a “release of the covenant” from the lender. The remaining partner must requalify for a mortgage with their assets. Both parties will need to have cash on hand and pay potential processing and legal fees.
- The second option to complete buying out a mortgage is for the partner who is staying to purchase the partner’s part of the loan. The partner who is staying also needs to requalify for the loan with their assets. A spousal mortgage buyout in Canada completed this way does not need to split directly in half, the couple can determine how they want to split the Mortgage. If there is sufficient equity in the home, the partner that wishes to keep it can take out a home equity loan to buy their ex-spouse’s portion of it. Click here to learn more about how home equity loans work.
Finding out how to buy out your partner in a mortgage in Canada depends on what is the best solution for you and your partner. Alpine Credits has been helping homeowners for over 50 years finding financial freedom and we can help you too.
Benefits of Using a Home Equity Loan to Buy Out Your Spouse in a Mortgage
It’s Easy to Qualify for a Home Equity Loan
Qualifying for a home equity loan is quite simple, even if you have bad credit or no 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 simply receive a lump sum of cash for their share of the equity.
The Cash Can Arrive in Your Account Within Days
At Alpine Credits, we strive to approve home equity loan applications within 24 hours. Once you’ve been 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.
Buying Out a Mortgage Concerns
For most married couples, the house is the most expensive asset that they have. That 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.
Couples who are not married, or even unromantic partnerships such as friends and siblings, 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 who want to declare their intent to divorce.
In many cases, an appraisal is done on the property to ensure that there is an agreement about how much it is worth now. This is not necessary for every spousal mortgage buyout in Canada however. The maximum loan to value ratio cannot exceed 95% or the remaining mortgage plus equity. The property also has to 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. The amount that is agreed upon in the separation agreement, if required, 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 house and a mortgage is a major financial obligation for many couples, married and otherwise. When deciding how to split assets during a divorce or separation, both parties should be aware of how to buy out your partner in a mortgage in Canada. This way both parties will know what the best solution is 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.
The second option requires quite a bit of cash. If there’s substantial equity in the home, a home equity loan can provide it.
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, it’s in their best interest to have their name removed from the mortgage. This will likely also necessitate a lump sum cash payment in exchange for the equity they contributed to building up in the property.
If your ex-partner is listed as an owner, you’ll need their consent to sell. They’ll also be entitled to a portion of the proceeds. If you intend to sell without their consent, you’ll need to have them removed from the home’s title.