Mortgage After Divorce: Know Your Options

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 Statistics Canada, 41% 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 you end up getting divorced and need 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. 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’ll need to confirm with your lender that this option is available.