Divorce and Property Division: What happens to the matrimonial home when couples decide to part ways?
Unfortunately, approximately 38% of marriages in Canada end in divorce. When couples separate, one of the most significant financial decisions they must make is what will happen to the matrimonial home.
If you are going through or considering a divorce or separation, it’s essential to be aware of your options regarding the home you both shared. One option is to sell the property, use the proceeds to pay off any joint debts, and split the remaining equity between you. However, if one party wishes to keep the home, there are three primary mortgage solutions available:
1. Insured Spousal Buyout Mortgage
An insured spousal buyout mortgage allows a homeowner to refinance up to 95% of the property’s value to pay out their ex-spouse’s equity share and any joint debts. Because this option involves borrowing more than 80% of the property’s value, mortgage default insurance is required and the person taking over the title will need to qualify for the mortgage on their own.
Example:
Sarah and James purchased their home for $500,000 and have an outstanding mortgage balance of $300,000. After their separation, Sarah wants to stay in the home. The home is now appraised at $600,000, giving them $300,000 in equity ($600,000 - $300,000).
Under the insured spousal buyout program, Sarah can refinance up to $570,000 (95% of the home’s value). After paying out James's share of the equity ($150,000) and any joint debts, she will assume full ownership of the home while maintaining a new mortgage with default insurance.
2. Conventional Spousal Buyout Mortgage
A conventional spousal buyout mortgage enables refinancing up to 80% of the property’s value. This option is ideal for those who have significant home equity and financial stability, as it does not require mortgage insurance. Just like an insured spousal buyout, the person taking over the title will need to qualify for the mortgage on their own.
Example:
David and Lisa have a home valued at $800,000 with an outstanding mortgage of $300,000. Their equity in the home is $500,000 ($800,000 - $300,000). Lisa wants to stay in the home, so she refinances up to $640,000 (80% of the home's value). This allows her to pay David his $250,000 share of the equity and maintain ownership. Because Lisa has a good income and credit rating, she qualifies for a conventional spousal buyout mortgage.
3. Reverse Mortgage Buyout
A reverse mortgage buyout is an option available to homeowners aged 55 and older, allowing them to access their home’s equity without making monthly payments. This solution is best suited for individuals who may not qualify based on their income or may be nearing retirement who want to stay in the home while buying out their ex-spouse’s share.
Example:
Susan and Mark, both 68 years old, own a home worth $700,000 and have no mortgage. After their separation, Mark wants to remain in the home but has a limited retirement income. He applies for a reverse mortgage and is able to access $350,000, which he uses to pay Susan her $350,000 equity share. Because reverse mortgages do not require monthly payments, Mark can stay in the home without added financial strain. A reverse mortgage is also now an option for Susan who wants to purchase another property but isn’t bringing in enough income to qualify for a traditional mortgage. Reverse mortgages also have the option for interest only payments for those that prefer making regular payments in order to maintain equity in their homes.
Choosing the Right Spousal Buyout Option
Each of these mortgage solutions serves different needs based on incomes, home equity, and future goals. If you're considering keeping the family home post-separation or divorce, or selling and purchasing something new, it’s crucial to consult with a mortgage professional who can guide you through the best option for your situation.