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Financial Literacy: Mortgage advice to help through a separation

It’s important to know how to handle your mortgage if you decide to separate

With the latest stats claiming that about half of marriages end in divorce and with around three-quarters of Canadians being homeowners, it’s important to know how to handle your mortgage if you decide to separate. Here’s a quick list of things to consider.

Keep making payments
A mortgage is a legally binding contract between you and the lender. It doesn’t take marriage into account. If your name appears on the mortgage, you’re responsible for making sure regular payments are made. A marital breakdown does not give you an excuse not to make your mortgage payments.

If, during your marriage, you’ve relied on your spouse to make the mortgage payments and you aren’t certain payments are being made after separating, it’s in your best interest to contact the lender directly to verify your mortgage is being paid. If payments aren’t being made, it could affect your credit score or worse, the lender could start foreclosure proceedings.

Cost to break a mortgage
When working through how to split your finances, you decide to either refinance your mortgage, remove someone from the title, or sell the property; keep in mind that you will incur legal costs.

If you’re in the middle of a term, the penalty for breaking your mortgage might be significant, especially if you have a fixed-rate mortgage.

It’s certainly worth contacting your mortgage lender directly to verify the cost of breaking your mortgage. Having that information accessible when writing out your separation agreement will provide increased clarity.

Listing marital status
When completing a mortgage application for securing new mortgage financing, when you list your marital status as separated or divorced, you can expect that a lender will want to see your legal separation agreement or divorce papers.

The lender wants to make sure you aren’t responsible for support payments. So, if you haven’t finalized the paperwork, expect delays in securing mortgage financing.

Could be harder to qualify
With the separation of assets also comes the separation of incomes. If you qualified for your existing mortgage on a double income, you might find it hard to maintain the same quality of lifestyle post-separation.

This is where careful planning comes in. Working closely with your mortgage professional will ensure you understand exactly where you stand. You’ll want to put together a plan for how to handle the mortgage on the matrimonial home.

Purchasing from your ex
There are special considerations given to people going through a separation to buy out the matrimonial home. Instead of looking at the transaction like a refinance where you can only borrow up to 80 per cent of the property’s value, lenders will consider one spouse buying out the other up to a 95 per cent loan to value ratio. This comes in handy when dividing assets and liabilities.

Ins and outs
Navigating the ins and outs of mortgage financing isn’t something you have to do alone. If you’re going through a separation and you’d like to discuss all your mortgage options, connect with a mortgage professional, who can walk you through the process.

Cait Holmes is a qathet region mortgage broker.