Separation & Divorce Mortgages

When a relationship ends, the house is usually the largest thing to decide and the hardest to divide. The mortgage question is narrow and answerable: can one person keep the home on their own income, and what does it take to get the other name off the mortgage?

Removing a name is a new mortgage

This surprises almost everyone. You cannot simply ask a lender to take a name off. Both people signed, both are liable, and the only way to release one of them is a new mortgage in the remaining borrower's name alone — which means qualifying for the whole balance on one income.

Two separate things also have to happen, and they are often confused:

• Title — who owns the property. Changed by your lawyer.
• The mortgage — who owes the debt. Changed only by refinancing.

Coming off title does not release you from the mortgage. People discover this years later, when a lender counts a mortgage they thought they had left behind against their next purchase.

The spousal buyout: up to 95% of the value

An ordinary refinance in Canada stops at 80% of the property's value. There is an important exception built for exactly this situation.

Under the mortgage insurers' spousal buyout programmes, one spouse can refinance up to 95% of the home's value in order to buy the other out. For a great many separating couples this is the difference between keeping the home and having to sell it.

The usual conditions are:

• A signed, final separation agreement setting out the division of property and the buyout figure
• The funds above the existing mortgage must go to settling the matrimonial property — paying out the departing spouse, and in some cases joint debts named in the agreement — not to general borrowing
• The property is the matrimonial home and the remaining borrower will occupy it
• The remaining borrower qualifies on their own, and the departing spouse comes off title and off the mortgage
• A current appraisal

The agreement being final matters. A draft is not enough, and this is the most common reason a buyout stalls — the financing is ready and the paperwork is not.

Qualifying on one income

This is the real hurdle. A few things help more than people expect:

• Support you receive can often be used as income — spousal or child — where the separation agreement sets it out and there is a record of it being paid. Lenders differ on how long a history they want and how much they will count.
• Support you pay counts against you, as a liability, which is the mirror image and catches people out.
• Joint debts cleared through the buyout remove their payments from your ratios, which sometimes matters more than the interest saved.
• A co-signer, often a parent, can bridge a gap where the income is close but not quite there.
• If no insured lender fits, an alternative lender for a term, with a plan to move once the dust settles, is a legitimate route. See private and second mortgages.

If keeping the house is not the right answer

Sometimes the honest arithmetic says sell. A payment that needed two incomes may not be survivable on one, and holding on through an expensive refinance only to sell in eighteen months is the worst of both outcomes. We will say so if that is what the numbers show — and then the question becomes what each of you can buy afterwards, which is a far easier conversation.

Common questions

Do we need the separation agreement finished first?

For a spousal buyout at up to 95%, yes — lenders need the final signed agreement showing the division and the buyout amount. It is still worth speaking to us beforehand, because knowing what will qualify can shape what the agreement should say.

Can I use the buyout to pay off my own credit cards too?

Only where the agreement identifies them as part of the property settlement. The programme exists to divide matrimonial property, not to consolidate personal debt, and lenders check.

My ex will not cooperate. Can I refinance anyway?

Not unilaterally — their signature is needed to come off title, and the division of a matrimonial home is a legal matter. This is a question for your family lawyer before it is a question for a lender.

Will I need to pay a penalty to break the existing mortgage?

Usually yes, and it should be part of the arithmetic from the start. Some lenders will allow the existing mortgage to be ported or blended instead, which can reduce it considerably. It is always worth asking what the penalty actually is rather than assuming.

What if neither of us can qualify alone?

Then the realistic options are selling, a co-signer, or an alternative lender for a defined period. All three are better than finding out at the last minute.

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This page is general information, not legal or financial advice. Programme terms and lending limits vary by insurer and lender and change over time. Obtain independent legal advice on your separation agreement and on title. Pegasus Mortgage Lending Center Inc., Brokerage, FSRA Licence #11479.