What Happens with Your Mortgage
During and After Divorce?
Divorces can be emotional and challenging on different levels for everyone involved, and it becomes even more complex when a mortgage is involved. Interestingly, seasonal trends show that January and September are the peak months for initiating formal separations. This could be due to various factors such as the stress of the holiday season or the desire to start the new year afresh. This article aims to provide a clear understanding of how divorce impacts mortgages in Canada, specifically focusing on Ontario’s regulations.
The Impact of Divorce on Mortgages
When a couple divorces, the shared responsibility of a mortgage can become a significant issue. The primary concern is deciding who will continue to live in the marital home and who will be responsible for the mortgage payments. This decision can be influenced by various factors such as the individual incomes of the parties, the presence of children, and the desire of the parties to maintain stability post-divorce. It’s also important to consider the potential impact on credit scores and future borrowing capacity.
Mortgage Payments and Credit Reporting
It’s important to note that divorce does not absolve either party from their obligations towards the mortgage. If mortgage payments are not made on time, it can negatively impact both parties’ credit ranking. This can make it more difficult to secure loans or credit in the future. It’s crucial to maintain a good credit worthiness, as it can affect your ability to rent an apartment, get a cell phone, and more.
Mortgage Options After Divorce
There are several options available for divorcing couples in Canada:
- Sell the Home: This is often the simplest solution. The proceeds from the sale can be used to pay off the mortgage, and any remaining money is divided between the parties. However, this option may not be viable if the housing market is down or if the couple has negative equity in the home.
- Refinance the Mortgage: One party may wish to keep the home and buy out the other’s share. This typically involves refinancing the mortgage to release equity. However, the party wishing to keep the home must have a sufficient income to qualify for the new mortgage on their own. Refinancing can also lead to changes in the mortgage terms and interest rates.
- Assume the Mortgage: If one party can afford the mortgage on their own, they may choose to assume the mortgage themselves. This option requires the approval of the mortgage lender. It’s important to note that the lender will consider the individual’s credit and income before approving the assumption.
Spousal Buyout Mortgage
In some cases, a Spousal Buyout Mortgage might be an option. This allows one spouse to buy out the other spouse’s equity in the property. The mortgage is registered solely in the name of the purchasing spouse, who becomes the sole owner of the property. This option can provide a clean break and allow both parties to move on.
Legal Considerations in Ontario
In Ontario, the Family Law Act stipulates that the value of any property that was acquired during the marriage and still exists at separation must be divided equally between the spouses. Therefore, the equity in the home must be shared. This law applies regardless of who is officially listed on the title of the home. It’s important to consult with a legal professional to understand how this law applies to your situation.
Divorce and Property Division
The division of property during a divorce can be a complex process. It involves determining what property is considered marital property, valuing the property, and deciding how it should be divided. The marital home is often the most significant asset to be divided. It’s also important to consider the potential tax implications of property division, if any are applicable.
The Role of TheBroker.ca Ltd.
TheBroker.ca Ltd. can guide you through the mortgage process during a divorce. We can provide information about your options and help you make the best decision for your situation. TheBroker.ca Ltd. can also assist with the refinancing process if you choose to go down that route.
Navigating through a divorce is difficult, especially when dealing with shared assets like a home. Understanding your mortgage options can make the process less stressful and lead to better financial outcomes. This article is intended for informational purposes only. It does not constitute legal advice, nor does it create an attorney-client relationship. Every situation is unique; therefore, it is essential to consult with a qualified legal professional to understand how the information in this article applies to your specific circumstances.