How to Handle a Mortgage After a Separation or Divorce in Toronto, ON
Mortgage Life After Separation and Divorce
Separation and divorce present many challenges. It's a situation you likely never thought you'd never be in, but now there are personal and financial consequences to handle. Most notably, one of the most significant challenges is dealing with a separation and divorce mortgage matter. Who gets the house? Should you sell? Are there other options available to you? Keep reading to find out what options you have, as well as mistakes to avoid in separation and divorce mortgages.
Tips on Separation and Divorce Mortgages
Before you move onto all the possible options for your mortgage, it's crucial to align with your ex-partner on desired outcomes. We suggest you take the time to do the following:
Have a conversation on what each partner ultimately wants. Does one partner want to keep the house more? Do you both want to keep it as an investment property together? Talk through this before moving into conversations on the next steps. This will ensure you know where you both stand.
Determine the home's value through a realtor or an appraiser. Ultimately, your home's value and your equity in it will determine what options you can proceed with.
Consider bringing in legal help. A third-party moderator can help you both make an equitable decision.
Options for Handling the Mortgage
After you have a sense of what both parties want and what your home is worth, you can explore the options available to you. There are a few to choose from:
Sell Your Home
The most obvious option is to sell your home. After a separation or divorce, you're both probably anxious to move out and live your own lives. Selling your home cuts another factor that was tying you to your ex-partner and provides you with the capital to start a new life.
You'll sell the house, pay off the mortgage, and take the remaining money for yourselves.
If you plan to fight for more than a 50/50 split of the equity from the home, bring in a divorce attorney as soon as possible.
If your home is worth less than the mortgage on it, you'll have to do a short-sale. A short sale will mean you both walk away with debt, and your credit scores will be negatively impacted. In a short sale scenario, you may want to discuss if selling the home is the right choice or if you both want to wait for the housing market to improve.
If one person really loves the home and wants to keep it, refinancing is an option. You can refinance the home under one person's name. However, refinancing is expensive as it comes with additional costs (legal, appraisal, and banking fees). Most experts say you can expect refinancing a mortgage to cost between 3-6% of the loan.
This option also only works if one partner can handle the mortgage payments independently.
Refinancing is only an option for a select few. It's quite rare that one person can handle the costs of divorce, refinance fees, and a mortgage all on their own. Only explore this option if you believe you can afford it.
Keep the House
So, if selling and refinancing both don't seem right, it's time to look at keeping the house.
Let One Partner Live In The House
You can choose to let one partner live in the house and pay the mortgage while both names are still on the mortgage. This may be an option if you're waiting for the market to pick back up so you can sell the house for a profit.
Unfortunately, this option comes with some downsides. First of all, there's an element of risk for the partner that moves out. Their name is still on the mortgage, so if their ex stops paying the monthly payments, they will be equally responsible for the debt. Secondly, this option can be unrealistic as many people don't want to live in a home full of memories from a failed relationship.
You can both choose to keep the property and rent it out. If you can collect a monthly rent payment covering the mortgage, you'll continue to build up equity in the home and increase your net worth. However, you should note that with this option:
You'll probably have to see your ex-spouse frequently to deal with landlord matters
Having this mortgage tied to your name can mean you won't be approved for other loans or mortgages
Any way that you look at it, divorce and separation are messy. Your home is probably the largest investment you've made in your life, so you want to make a responsible decision. Consider all of your options and find the solution that works best for both of you.
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