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Divorce Process - Managing Your Mortgage

Divorce Process - Managing Your Mortgage

In reality, a large number of marriages end in divorce. This is an extremely hard time in anyone's life, and with that in mind, lenders and mortgage insurers have come up with a product that can help. It is the ability to refinance your matrimonial home, up to 95% of its value to payout your ex-spouse their portion of the equity and perhaps even some of the debts you incurred together. This is a specialty product, though, and there are certain things you must do.

  1. You must complete a legal separation agreement through a lawyer. Even if it is the most amicable separation possible, this must be done legally to protect your individual rights fully. If you are the one staying in your home, you will want to ensure that your ex-spouse has legally and irrevocably given up their rights to the home. If you are the one leaving, you want to ensure your name is removed from the title as to ensure you no longer hold any legal obligations connected to the property. There will be a cost associated with the legal separation agreement, which would start at $2,500 at a bare minimum charge. It is also important to have this completed in an urgent manner, as well as address any debt taken on during the course of the marriage. These can be paid out from the proceeds of the new mortgage but only if they are listed.

  2. It is important to also order an appraisal of your home for two reasons. The first being, you and your ex-spouse will be able to determine the true value of the home through an impartial third party. Secondly, most lenders require it in this situation to proceed.

  3. Write an offer to purchase. Many are caught off guard by the need for this step; why should you have to write an offer of purchase for a property you already own? The lenders require this legally binding document as well, as it indicates the agreement on price and the final closing date. This can be completed through your lawyer, with the help of a willing real estate professional, or on your own with a form available online.

  4. Get a mortgage. You have likely been in contact with your mortgage professional by this stage but if not, now is the time! You will need to provide the following documents:

  • Separation Agreement

  • Appraisal

  • Offer to Purchase

  • Letter of Employment and Paystubs

  • Last Two Years Notice of Assessments or T4's

NOTE: If you are borrowing up to 95% of the value of the property, you will be charged new mortgage insurance premiums. As the sole borrower, this mortgage is considered a new application and the rule applies even if you have already paid mortgage insurance previously for this same property. Here is a breakdown:

Home Value $300,000.00

5% Equity $15,000.00

New Mortgage $285,000.00

Insurance Premium $11,400.00

Total Loan $296,400.00

If you are starting the process of separation/divorce, this is a product that can help you through a very challenging time. Feel free to contact us with any questions you may have; we are more than happy to assist in making this process easier for you!

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