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Divorce Mortgage Options: Sell, Refinance, or Buy Out Your Spouse

For many, the home represents the largest shared asset in a marriage, making it a focal point in divorce or separation discussions. If you decide to keep your house, what happens to the mortgage next is crucial to your financial well-being, both during and after the separation

In this article, we’ll explore mortgage options available during a divorce and separation, how it interacts with the spousal buy out process, and a step-by-step guide on how to best prepare your home finances to weather this major life event.

Explore Your Mortgage Options and Make Informed Decisions During Divorce and Separation

A divorce or separation is costly and can have a major impact on your finances. According to the Financial Agency of Canada data, over 60% of the Canadians who own a home holds a mortgage. When comes the time to decide who keeps the house who gets paid out, what happens to your shared mortgage with the other party is a big question mark. Aside from your liquid investments, the equity in your matrimonial home is often the biggest financial resources to lean on. To access additional home equity, you will need a mortgage even if you don’t currently have one.

So what happens to your mortgage during a separation. The answer depends on a few things: whether you are keeping the house, your current income and credit situation, and how much funds you need for the separation. 

Here are four scenarios, with the last one being the most common but also most complex:

Scenario #1: Sell Your Home, No New Property: What's the Plan?

Decide on a selling price and divide the proceeds accordingly. The proceeds from the sale of the property will be used to first pay out the existing mortgage amount. The remaining equity will be divided up by the two parties based on what you agreed upon during a separation. For example:

Case: Sell Your Home, Divide the Proceeds

In this scenario, you have a matrimonial home that sold for $500,000. You have an existing $300,000 mortgage on the home. Upon closing of the sale, you will need to payout the $300K mortgage. You will then divide the remaining $200K equity, net of closing costs and realtor commission, between you and your spouse.

If what you agreed on is 50/50, then you will each receive $100K (net of closing costs) from the sale. Please note that this is a simplified example and assumes that there are no other assets of consideration during the separation.

Scenario #2: A New Chapter: Selling Your Home and Buying After Separation

After selling the property, look for a new house post-separation. In this scenario, you have two options to finance the new purchase.

Option1: Discharge Your Existing Mortgage and Apply for a New Mortgage

To apply for a new mortgage, you will need to qualify for a new mortgage on your income, or with a guarantor/co-signer if that’s an option. Going from double income to single income, be prepared to qualify for a smaller mortgage amount than you previously could. If you have accumulated debts during the separation, that may lead to a decrease of the mortgage amount as well.

If these factors impact your ability to qualify with a bank lender, you might want to consider some of the Alternative Lending options such as B Lender and Private Lender mortgage products. More on these products later in the article.

Option 2: Porting Your Current Mortgage

Porting a mortgage involves transferring the mortgage from one property to another, which can be a viable option if one spouse decides to buy a new home. You will still need to re-qualify for the entire mortgage amount. But this can be particularly advantageous if your current mortgage terms are favorable compared to current market conditions. It could also help you avoid the penalties from breaking the current mortgage term.

Let’s talk about down payment…

Whether you are applying for a new mortgage on your own, or porting your existing mortgage, you will need sufficient down payment for the new house.

Your portion of the home equity from the sale of the existing house can be used towards the down payment of the new house.

However, after going through a life event, your credit score might be impacted and you will likely need to have 20% down payment or higher, but not always.

If you are unsure about how much you can qualify, you can consult a Mortgage Broker specialized in divorce and separation mortgage.

Scenario #3: Hold Onto Your Home: No Mortgage Increase Needed

There are many reasons why people prefer to keep the property during a separation. The most common reason is a strong attachment to the home they lived in for many years or there may be young kids that make moving out of the house and neighbourhood very difficult and inconvenient. 

To keep the home, agree on a spousal payout and the home’s value.

If the two parties cannot agree on who keeps the house and the $ amount to be paid to the other party, then this is not an option. In that case, your option solution is to sell the property. 

However, assuming that you have agreed on a payout amount, and you have sufficient liquid asset for the payout without needing to take out home equity, what you need is mortgage transfer or assumption.

Case: Mortgage Transfer / Assumption

Using scenario #1, you have a house worth $500,000, with a $300,000 existing mortgage. You and your spouse agreed that you will Keep the house, and he/she will receive $100K, i.e. 50% of the estimated home equity remaining net of the mortgage.

You happen to have $100K in stock portfolio for the payout. In this scenario, you do not need to increase the mortgage amount, you can simply choose to payout your spouse by cashing the stocks.

Afterwards the house will be transferred to your name alone, and you will assume the $300K mortgage balance on the property.

Assumable Mortgage or Mortgage Transfer

To transfer or assume a mortgage, you need to first ensure your current mortgage product is “assumable” or “transferrable”. Some of the no-frill mortgage products may not contain this feature. If your current mortgage is not transferrable, you will need to get a brand new mortgage.

An assumable mortgage allows one spouse to take over the full responsibility of the mortgage, releasing the other from any obligations. This is contingent on the lender’s approval and the assuming spouse’s ability to qualify for the mortgage on their own.

Once confirmed the mortgage is transferable with your current lender, you need to undergo a thorough credit and income re-qualification by your existing lender to ensure the assuming spouse can handle the mortgage independently.

Some may ask, if I have to re qualify for a mortgage anyways, why would I go through an assumption or transfer? The benefit of an assumption is that you get to keep the existing mortgage rate and term, which might be better than the current interest rate, and it saves you the penalties and fees from breaking the mortgage before maturity.

The title or ownership of the property will also be transferred to the party who assumed the mortgage. The other party will be taken off the mortgage and the title of the property.

Scenario #4: Staying and Borrowing More: Keeping Your Home with a Higher Mortgage

This is the most common scenario during a divorce or separation, which is for one party to keep the property, assume the mortgage, and simultaneously increase the mortgage mount.

The key difference here is whether you have enough funds to cover the spousal payout. In Scenario No. 3, the party who keeps the house has extra liquid assets to payout the spouse completely without needing to take out additional equity from the house.

Refinancing Amid Divorce: Why It Makes Sense

Since the spousal buy out amount is usually a large sum, not everyone has enough liquid asset to completely cover the buy out without drawing on home equity.

In addition, some liquid assets might be within an RRSP or TFSA account which could results in large sum of taxes upon withdrawn.

Last not least, mortgages are among the lowest cost debts, meaning the mortgage rates might be lower than what you can earn in your investment portfolio, which is why some prefers to refinance their mortgage to cover the buy out, while keeping their investment portfolio.

Qualifying for a Refinance During Separation: How Much Can You Get?

It depends on home equity available, your income and credit situation. Let’s look at these factors one by one.

Home Equity

The maximum mortgage amount you can qualify for during a refinance is up to 80% of the home value. For example, if your home is valued at $500k, the maximum loan amount you are able to qualify for is $400k.

One thing worth noting is that if your current mortgage is already at 80% of higher of your home value, refinance is not an option. You will likely have to assume the existing mortgage if you would like to keep the house, or you might have to sell.


You will need to qualify for the mortgage based on your own income. If you have a parent or close relative who is able to co-sign or be a guarantor on the mortgage, it can potentially boost the mortgage amount you are able to qualify.

When applying for a divorce or separation mortgage, **Child Support** or **Spousal Support** amount laid out in the separation agreement will also be taken into account. For example, if you are receiving Child Support or Spousal Support, it will be added to your income, which will increase the mortgage you can get. If you are paying, on the other end, it will be viewed as a “liability”, which will decrease the mortgage you can qualify for.

Government payments such as Child Tax Benefit for children less than 13 years old may also be about to count towards your overall income.


Many who are going through a divorce or separation see a decline of their credit scores due to the additional strains this life event bears on their finances.

Some people accumulated additional debts due to the related costs. Some people may have been used to shared accounts, and leads to neglected bills simple due to lack of experience or mis communication.

If your credit score is greater than 680 with clean repayment history, you will be eligible for most of the low cost mortgage options assuming your income qualifies and there’s sufficient home equity.

If your credit score is lower than 680 or you have recently been late or had collections on your credit report, most of the bank mortgage lenders will not be able to re-qualify you on your own.

We will discuss the options with bank mortgage lenders vs. alternative lenders in the next section.

Spouse Buyout: Your Mortgage Options

One spouse buys out the other by taking over the mortgage and compensating for their share. The mortgage options available to buyout your spouse depends on a few things…

Who is on Title?

First things first, it depends on who currently holds the title of the property.

  • If both of you are on title, which is usually the case, buying out a spouse involves one partner taking full ownership of the home and refinancing the mortgage to remove the other’s name. It’s often referred to as a refinance-title transfer.
  • If you are not on title, i.e. your spouse is the sole owner of the house per the land registry, you will need to “purchase” the property from your spouse at an agreed upon price to gain ownership.

Now you have clarified the existing title and ownership, how do buy them out?

Lump-sum Payment

If financial resources allow, one spouse can make a lump-sum payment to buy out the other’s share. This might come from personal savings, investments, or a loan from family member.

As discussed in the previous sections, due to the large sum of funds involved during a spousal buy out, it’s very rare for one to finance 100% of the buy out using cash or investments.

Tapping into your home equity through mortgage is a more common and often cost effective alternative.

Mortgage Refinance: Banks, B Lenders, and Private Options

Refinancing is the most commonly used product to finance a buyout during a separation.

In Scenario 4 above, we discussed what determines how much mortgage you are able to qualify when refinance your property. We will further discuss what products are available from Bank Lenders, B Lenders and Private Lenders.

Your Separation Agreement plays a big role in which type of mortgage lenders your refinance will fit into. The reason being is that the terms set out in your Separation Agreement plays a big part on your income and cash flow situation after a divorce. For example if you are ordered to make a large spousal support payment each month vs. receiving spousal support it, which can drastically change your finance situation.

If You Already Have a Separation Agreement

In this case, you will likely to be able to qualify for a bank mortgage, assuming you are able to meet the standard income and credit requirements set out by the banks. Banks mandates executed Separation Agreement because this paints a clear picture of what will happen to you and your spouse’s finances after the separation.

The benefit of obtaining a mortgage refinance with a bank lender is that it offers the lowest mortgage rate. The down side is that you need to be prepared to go through a thorough re qualification process and it usually take longer to obtain an approval than a standard mortgage.

The second largest challenge with getting a mortgage refinance from a bank during a separation is that due to reduction of income, many people find they are not able to qualify for enough mortgage amount to give them enough funds for the buy out.

That’s when B Lenders come in. With a B Lender or Alternative Lender, you might be able to qualify for up to 50% higher of the mortgage amount all else being the same.

B Lenders are also relatively flexible on credit score. There is no minimum credit per se, but when the credit scores are below 500, it requires a strong overall borrower profile to support the mortgage.

As a trade off, B Lender rates are approximately 1% to 2% higher than bank rates and it comes with 1% one-time up-front lender fee.

If You Do Not Have a Separation Agreement Yet

If you do not have a Separation Agreement in place, but you prefer to settle the buy out sooner than later, then Private Lender Mortgages are your best bet.

Private Mortgage Lenders do not have minimum requirement on credit score. Many Private Lenders also do not require formal income verification.

As long as there’s enough home equity, most Private Lenders will be able to grant the mortgage amount you want with minimum docs.

The tradeoff is higher interest rate and lender fees. Private Lenders mortgage rates are usually 1-2% more expensive than B Lenders, and comes with 1% to up to 3% lender fees depends on the location and condition of the property.

Home Finance Prep During Separation: Your Action Plan

Preparing your finances during a separation is essential to ensure that both parties can move forward with stability. Here’s how to manage your home finances effectively:

IMPORTANT: It’s advisable to consult with legal and financial professionals like Effortless Mortgage Advisors to understand the best course of action. This includes discussing potential tax implications and ensuring the legality of all arrangements.

Separation Mortgage FAQS

How Do I Pay for the Mortgage During the Separation Process?

The last thing you want during a divorce or separation is for your mortgage payment to go into default. It will be a major red flag for lenders to re-qualify you or refinance your mortgage.

If you are the party who is keeping the house and assuming the mortgage, you may be able to take out additional home equity to help you manage the cash flow needed to make the mortgage payment while finalizing the divorce or separation.

If the mortgage remains a shared responsibility, it’s a good practice to make agreements on payment on mortgage clear and in writing, possibly with the help of a mediator or legal advisor to avoid missed payments and penalties.

Can Both Spouses Names Be Removed from the Mortgage During a Separation?

If you decide to sell the house, yes, both spouses will be off the title of the house once it’s sold.

If you decide to keep the house, unless the mortgage is fully paid off or refinanced, at least one spouse’s name will remain on the mortgage. The process typically requires someone to qualify independently to take over the mortgage. See Scenario No. 3 and No. 4 in the main body of this article for more details.

What is the Impact of Mortgage Renewal During a Separation?

If your mortgage renewal date is approaching during your separation, consider your options carefully.

If you are still months away from reaching a Separation Agreement, your best option is to renew jointly with a flexible rate and term, preferably an open term, to avoid penalties if you know your plan is to pay out or transfer the mortgage in the near future.

If you already have a Separation Agreement, and is clear on who keeps the house vs. who is being bought out, then mortgage renewal is a perfect time to consider your refinance options and complete title transfer. The reason being is that there is no penalties for breaking the mortgage at maturity, so you are free to refinance, switch lenders, or transfer titles without these added costs.

Is It Possible to Avoid Selling the Home During a Separation?

Yes, through refinancing or assuming the mortgage, it might be possible to retain the home without selling. However, this depends largely on individual financial circumstances and whether both parties agree on who keeps the property and how much the other spouse receives in exchange of moving out.

In Conclusion:

Navigating mortgage decisions during a separation requires careful planning and informed decisions. Whether you choose to sell, refinance, or buy out your spouse, understanding your options is crucial.

Assess your financial health, gather necessary documents, consult advisors, and update financial accounts to ensure stability. Tailor these steps to your unique situation for a smoother transition.

Effortless Mortgage is available 7 days a week to support you in your next life chapter and mortgage journey. Book a call with one of our senior advisors today.

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