No matter how prepared you feel when your marriage breaks down, navigating a separation and then a divorce is an emotionally draining experience – regardless of who initiated the process.
Separation and divorce can also be expensive as you begin dividing your finances and assets. But getting an early start on these proceedings can save you a lot of time, stress and even money down the road.
What do you do with the matrimonial home? Is one of you thinking of staying in the home? Are you going to sell and split the proceeds?
If you decide to stay in the home – for the sake of the kids or your own sanity – it’s important to first examine your finances to determine if you can comfortably afford to buy out your spouse. If you’ve decided to remain in your matrimonial home, but the mortgage payments, taxes, monthly bills and upkeep push you to your financial limit, it may be smarter to sell, split the proceeds and then buy another property.
Special mortgage programs
I have access to mortgage options that your bank may not think to offer that could save you a lot of stress and money. When refinancing a typical mortgage, you can only access up to 80% of the home’s value. But, through an Equity Buy-Out Program, you can essentially buy the home from your spouse and unlock up to 95% of its equity.
This added access to funds often makes the difference between one spouse being able to buy out the other’s half of the home versus having to sell the home and find two new separate places to live.
Equity buy-out example
$500,000 Home Value
Regular mortgage refinance:
80% LTV – $400,000
2.79% 5-year fixed rate with a 30-year amortization
= $1,638 monthly payment
Equity buy-out program:
Buy-out with amortization back up to 25 years
Fully new chargeable lender Insurance up to 95% LTV
$475,000 + Lender Insurance ($19,000) = $494,000
2.64% 5-year fixed rate with a 25-year amortization
= $2,248 monthly payment
As you can see outlined above, with an equity buy-out, you’re able to access an $75,000 on top of what would be available through a regular refinance. You must, however, pay a new lender insurance fee of $19,000.
Another option is to top up the buy-out while keep the amortization the same:
Example using 15-year amortization
Current pre-buyout mortgage of $300,000
New funds of $175,000 for total of $175,000
$175,000 at 6.3% lender insurance top-up fee = $11,025
Total mortgage of $486,025
2.64% 5-year fixed rate with a 15-year amortization
= $3,270 monthly
A buy-out that keeps the same amortization may be eligible for porting the current lender insurance fee, which would be quoted from the current insurer (CMHC, Genworth or Canada Guarantee). This can either end up being a port of the existing insurance premium or an increase on top of existing lender insurance, but still less than the full top up.
Have questions about your mortgage options during separation or divorce? Answers are a call or email away.