Divorce can be one of life’s most emotionally and financially complex events—especially when a home and mortgage are involved. Whether you’re looking to stay in the home, sell it, or transfer the mortgage, it’s important to understand your options and obligations.
This guide covers the basics of how divorce may impact your mortgage in Canada, and the choices available to separating couples when it comes to shared property and financing.
Understanding Joint Mortgages
Most couples who buy a home together in Canada are listed as co-borrowers on the mortgage. That means both parties are legally responsible for the entire mortgage—not just their half.
If a couple separates and one person decides to move out, they’re still financially tied to the loan unless the mortgage is refinanced, paid out, or otherwise legally modified. This is why clear communication and legal support are critical during a separation involving a home.
Common Scenarios and Your Options
There’s no one-size-fits-all solution when it comes to a home after divorce. Here are the most common routes couples take:
1. One Spouse Keeps the Home
In this case, the spouse staying in the home typically assumes the mortgage on their own by refinancing. To do this, they need to qualify for the mortgage independently—based on their own income, credit, and debt levels.
This process usually involves:
- Buying out the other person’s share of equity
- Paying legal fees, closing costs, and possibly a prepayment penalty (depending on the mortgage)
- Demonstrating to the lender that you can carry the mortgage solo
A mortgage broker can help assess whether this is financially realistic and guide you through refinancing options.
2. The Home Is Sold
If neither party can afford the home or neither wants to stay, selling may be the best choice. The proceeds are then divided based on your separation agreement or court ruling.
Keep in mind:
- Both names remain on the mortgage and title until the sale closes
- Any equity (or debt) is shared based on your agreement
- You may need to budget for realtor commissions and potential legal fees
Selling can provide a fresh start, though it may not always be possible in a slower real estate market.
3. The Mortgage Stays in Both Names
Sometimes, ex-partners agree to keep the mortgage in both names temporarily—often until children finish school or the market improves. This can work if both parties are cooperative, but it does carry risk:
- Missed payments affect both credit scores
- The person not living in the home is still legally responsible
- It may limit the ability to buy another property during this time
Always seek legal and financial advice before choosing this option.
Equity, Payouts, and the Role of Appraisals
If one person is keeping the home, a key step is determining how much equity exists. This is typically done through a formal home appraisal. Once you know the market value, subtract the remaining mortgage balance to calculate equity.
For example:
- Home value: $600,000
- Mortgage balance: $400,000
- Equity: $200,000
If each partner is entitled to 50%, the person staying would typically need to come up with $100,000 to buy out the other’s share—often by increasing the mortgage through a refinance.
Can You Use the Spousal Buyout Program?
Some lenders offer a Spousal Buyout Program, which allows one spouse to refinance the mortgage up to 95% of the home’s appraised value, instead of the typical 80%. This can help with accessing the funds needed to buy out the other party without needing extra savings.
There are conditions:
- A formal separation agreement is required
- The home must be jointly owned and the buyout clearly documented
- You must qualify for the mortgage on your own
This type of mortgage can only be arranged through a mortgage broker—not directly through most banks.
Other Considerations
- Credit scores: Missed payments during a separation can damage both parties’ credit. Protect yourself by communicating with your lender and ensuring payments are made on time.
- Mortgage penalties: Breaking a mortgage before the end of its term can trigger prepayment fees. These can be significant, especially on fixed-rate mortgages.
- Legal and tax advice: Speak with a lawyer and financial advisor to understand your rights and the tax implications of any decisions.
Final Thoughts
Divorce and mortgages can be complicated—but you don’t have to figure it all out alone. Whether you’re staying in the home, selling, or starting fresh, working with an experienced mortgage broker can help you understand your options and secure financing that supports your next step.
We’re here to help you through this process with clarity, professionalism, and a judgment-free approach.
👉 Contact us today to explore your mortgage options during separation or divorce.
