'Til Death Do Us Part...But Sometimes Not
What happens when we buy a house with someone (*note I’m not referring to a cosigner*) but then that living arrangement is no longer desirable? We may want to keep the home ourselves, and there may be some equity that needs split. The government caps refinancing to 80% loan to value so if there’s a need to take out equity to buy out your partner you may not have enough room under a refinance program. So what can we do? We can look to the spousal dissolution mortgage.
A spousal dissolution mortgage is a type of mortgage that allows one spouse to keep the family home after a separation or divorce. This type of mortgage is specifically designed to help spouses separate their financial assets and liabilities when they separate or #divorce.
The spousal dissolution mortgage works by allowing the spouse who wants to keep the home to buy out the other spouse's share of the property. This is done by refinancing the existing mortgage to include the an #equity take out. The spouse who wants to keep the home then becomes the sole owner of the property and is responsible for paying the mortgage.
The spousal dissolution mortgage is a useful tool because it allows couples to divide their assets fairly without having to sell the family home. This can be especially important for couples who have children, as it provides a sense of stability for the children by allowing them to stay in the family home.
A spousal dissolution mortgage is an insured mortgage and so can go up to 95% loan to value, which means that the spouse who wants to keep the home can borrow up to 95% of the appraised value of the property. This is different than a normal refinance, which is capped at 80% loan to value and cannot qualify for mortgage default insurance (aka: CMHC).
A spousal dissolution mortgage can include jointly accrued debts, such as credit card debt or personal loans. This means that the spouse who wants to keep the home can consolidate some debts into the new mortgage, which can help simplify their finances and reduce their monthly payments.
When applying for an insured spousal dissolution mortgage, it's important to note that a legal separation agreement is required by the lender. Any debts that are to be paid off via the mortgage must be listed in the separation agreement.
A legal separation agreement is a legal document that outlines the terms of the separation or divorce, including the division of assets and liabilities. This document is important because it helps to protect the interests of both parties and provides a clear understanding of each spouse's responsibilities and obligations.
It's important to note that a spousal dissolution mortgage can be complex and involves legal and financial considerations. If you are considering a spousal dissolution mortgage, it's recommended that you consult with a lawyer and a mortgage professional to ensure that you understand your options and make the best decision for your circumstances.
There are instances outside of romantic partnerships that can utilize this program. For example; Two siblings who co-bought a home but now no longer want to be on title together. Talk to your mortgage broker to see if this program is a fit for you.
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