How to Buyout Your Partner in a Mortgage in Canada

Oct 15

Splitting up shared property is part of the divorce process, and that includes your home. One mortgage option during divorce is to “buyout” your partner, which means you take over the mortgage and mortgage payments on your own.

However, your original mortgage is likely in both of your names (and based on both of your incomes). That means you’ll have to go through the mortgage process again to “assume” or “buyout” your ex-spouse.

Key Takeaways

To apply for a spousal buyout or to assume the mortgage from your ex-spouse a fully signed separation agreement is required.
A mortgage buyout allows one partner to keep the home and take over the mortgage payments.
When buying out a spouse, you will need to re-apply and re-qualify for the mortgage on your own.
Talk to your mortgage broker about first-time home buyer and spousal buyout programs, as there are special programs for those going through divorce or common-law separation.

What Is a Mortgage Buyout?

During a mortgage buyout, the partner who wants to keep the property will need to refinance the mortgage in their name alone. This means you will need to qualify for a mortgage on your own, based on your income, credit score, and debt.

You will also need to pay off your ex-spouse’s share of the equity that was gained during the time you owned the home together. This can be done in a lump sum or payments over time, depending on what the partners have agreed to and outlined in the separation agreement.

There may be fees associated with refinancing the mortgage and paying out the other partner's share of the equity. It's important to work with a qualified mortgage broker and lawyer who can help you navigate the process and ensure that you understand all of the costs involved.

Legal Implications

Understanding Property Laws

In Canada, property laws vary depending on the province or territory. In many cases, the marital home is considered a joint asset, even if only one spouse’s name is on the title. This means that both partners have equal rights to the property, and both must agree to any decisions regarding the property.

If you want to buyout your partner, they must agree to it in the separation agreement.

Consulting a Lawyer

Consulting a legal expert is highly recommended when buying out your partner in a mortgage. A lawyer can provide valuable advice and guidance throughout the process, ensuring that you are following all the necessary legal procedures and protecting your interests.

A lawyer can also help you draft a separation agreement that outlines the terms of the buyout and protects your rights. This agreement should cover all aspects of the buyout, including the value of the property, the amount of equity to be divided, and the terms of the mortgage.

Financial & Mortgage Assistance for Divorce

Spousal Buyout Program

When you’re refinancing a mortgage under normal circumstances, you’re typically limited to accessing a maximum of 80% of the home's value. However, by taking advantage of the Spousal Buyout Program, you have the opportunity to effectively "purchase" the property from your spouse, granting you access to up to 95% of its equity.

Additionally, this specialized program allows you to combine other divorce payments, like debt and equity payments, up to 95% of the home’s appraised value.

The Spousal Buyout Program is often the difference between one spouse keeping the home and having to sell and split the proceeds.

First-Time Home Buyer Programs

In the event of a divorce, Canadians become eligible for first-time home buyer programs again.

One available program is the Home Buyers' Plan (HBP), which allows first-time home buyers to withdraw up to $35,000 from their registered retirement savings plan (RRSP) for the purpose of buying or building a qualifying home.

Under the new rules, a person can qualify as a first-time home buyer if they separated from their partner within the four years prior to the withdrawal, so long as they have been living apart for at least 90 days. Additionally, they cannot be living in a home owned by a new spouse or partner at the time they make the withdrawal.

Another program is the First-Time Home Buyer Incentive, which provides a shared equity mortgage with the Government of Canada. This program allows eligible first-time home buyers to finance a portion of their home purchase through a shared equity mortgage with the Government of Canada.

The incentive amount is up to 5% of the purchase price of the home (10% for new construction), and the buyer must repay the incentive after 25 years or when the property is sold, whichever comes first.

Applying for a Mortgage Refinance

Choosing a Lender

You might stay with your current mortgage lender, or you might need to choose a new lender. The best way to know which option is best is to work with a mortgage broker.

A mortgage broker can shop around and compare rates for you, so you’re more likely to find a lender that will approve your mortgage buyout.

Preparing Required Documentation

To apply for a mortgage refinance, you will need to provide documentation to support your application. This will include:

A signed separation agreement
Proof of income, such as pay stubs or tax returns
Proof of employment
A list of your debts and assets
A copy of your current mortgage statement
Proof of home insurance
Home appraisal

Once you have gathered all the necessary documentation, you can submit your application to the lender. The lender will review your application and determine whether you qualify for a mortgage refinance. If you are approved, you will need to sign a new mortgage agreement and pay any fees associated with the refinance.

Post-Buyout Considerations

After successfully buying out your partner's share of your mortgage, there are a few post-buyout considerations to keep in mind to ensure a smooth transition.

Updating Property Titles

When you buyout your partner's share of the mortgage, you will need to update the property title to reflect your sole ownership. When your mortgage is approved, you will need to work with a lawyer to change the title of the home into sole ownership. The lawyer will make the changes, submit the changes to the land titles office and send you an updated title when complete.

Managing Mortgage Payments

After the buyout, you will be solely responsible for making mortgage payments. It is important to ensure that you have the financial resources to make these payments on time. If you are struggling to make payments, you may want to consider refinancing your mortgage or seeking financial assistance from a credit counsellor.

It is also important to review your mortgage agreement to ensure that there are no penalties or fees for paying off the mortgage early. If there are penalties, you may want to wait until the penalty period has ended before completing the buyout. Understanding the penalties associated with the buyout should happen BEFORE the separation agreement is signed as negotiating who is responsible for the penalties should be part of the mortgage transaction.

Is Buying Out My Partner Right for Me?

Buying out a partner in a divorce can be a great option, particularly for families who are looking to keep consistency for their children. That said, it’s not the best option for everyone.

A mortgage buyout depends on many things, like your financial status, the home’s value, and even your partner’s willingness to allow the buyout in the first place.

The best advice is advice tailored to you and your unique situation. For advice specific to you, contact Spire Mortgage. Our mortgage brokers will help you navigate your mortgage through divorce so you can make the right choice for you.

Renee Huse