Divorce and Spousal Buyouts: Keeping the Family Home
Under the Spousal Buyout Program, Ontario homeowners can refinance up to 95% of their home's value to pay out an ex-partner.
Navigating a divorce is emotionally draining, and the question of what happens to the family home is often the most stressful part. In many cases, one partner wishes to stay in the home, perhaps to provide stability for children or to stay close to work in cities like Brampton. Traditionally, a standard refinance only allows you to access up to 80% of the home's value. However, under specialized 'Spousal Buyout' programs available in Ontario, you can actually refinance up to 95% of the property's value. This extra 15% is often the difference between being able to buy out your ex-partner's equity and being forced to sell the home.
To qualify for this program, you must have a legally binding Separation Agreement that clearly outlines the division of assets, including the specific amount to be paid to the departing spouse. The lender will also require a fresh appraisal of the home to determine the current market value. The proceeds from the new mortgage must go directly to the departing spouse or be used to pay off joint debts as specified in the agreement. This program essentially treats the buyout as a 'purchase' of the other half of the house, which is why the higher loan-to-value ratio is permitted by insurers like CMHC or Sagen.
Qualifying for the new mortgage on a single income can be a challenge, but lenders will often allow you to use child support or spousal support payments as part of your total income, provided they have been received consistently for several months. Conversely, if you are the one paying support, those payments will be counted as a debt, which reduces your borrowing power. It is a complex calculation that requires a broker who understands the nuances of 'split-income' and 'non-traditional' income sources to ensure your debt-servicing ratios meet the bank's requirements during this transition.
I recommend involving a broker as soon as you and your lawyer begin discussing the division of assets. Do not sign a final separation agreement until you have a mortgage pre-approval in hand for the buyout amount; otherwise, you might commit to a payment you can't actually finance. Ensure that you have a clean credit report, as any joint credit cards that were neglected during the separation could impact your ability to qualify alone. Reach out for a confidential consultation so we can look at the math and help you keep the keys to your family home during this difficult time.