Divorce can be a challenging and emotionally draining process, particularly when dividing shared assets, including the family home. In many cases, one spouse wishes to remain in the house while the other seeks to be financially compensated for their share. This is where spousal buyout mortgages come into play, offering a viable solution for divorcing couples to navigate this complex situation. This article will explore the concept of spousal buyout mortgages, their benefits, and how they work.
Understanding Spousal Buyout Mortgages
A spousal buyout mortgage is a type of home loan that allows one spouse to buy out the other spouse’s interest in the marital home. It enables the spouse who wishes to remain in the property to refinance the mortgage or take out a new loan in their name, providing them with the necessary funds to buy out their ex-spouse’s share. The terms and conditions of spousal buyout mortgages can vary depending on the lender and the specific circumstances of the divorce.
Benefits of Spousal Buyout Mortgages
- Retaining the Family Home: One of the primary benefits of a spousal buyout mortgage is the ability of one spouse to keep the family home; especially when there are children involved. This can provide a sense of stability during a challenging period and minimize the disruption in the lives of the children.
- Avoiding Forced Sale: Without a spousal buyout mortgage, couples often face the prospect of selling the family home to divide the proceeds. This can be a lengthy and stressful process, with potential complications in a fluctuating real estate market. With a spousal buyout mortgage, the selling spouse can be compensated directly, allowing the remaining spouse to remain in the home.
- Potential Financial Savings: In some cases, spousal buyout mortgages can be more cost-effective compared to selling the home and buying a new one. By refinancing, the remaining spouse can take advantage of favourable interest rates and potentially save on transaction costs associated with selling and buying a new property. Many AAA lenders that Mortgage Suite has access to allow for up to 95% LTV refinances at insured mortgage rates.
How Spousal Buyout Mortgages Work
The process of obtaining a spousal buyout mortgage generally involves a few key steps:
- Property Appraisal: An independent appraiser determines the current value of the marital home. This establishes the fair market value for the buyout.
- Agreement on Equity Split: The divorcing couple needs to agree on how the home’s equity will be divided. This determines the amount the remaining spouse needs to borrow to buy out the other spouse’s share. It is important to have this agreed equity split included in the final separation agreement.
- Loan Application: The remaining spouse works with a mortgage professional to apply for a spousal buyout mortgage. We will evaluate the remaining spouse’s creditworthiness, income, and the property’s value to determine the mortgage terms.
- Loan Approval and Settlement: If the application is approved, the remaining spouse can refinance the existing mortgage or obtain a new loan in their name. The equity pulled is used to buy out the other spouse’s share. The selling spouse receives their agreed-upon portion of the equity.
- Loan Repayment: The remaining spouse becomes solely responsible for making mortgage payments on the property. The selling spouse is removed from the title of the property.
A divorce is never easy. It is a stressful time for both parties and their entire families. However, with proper mortgage planning, a trained professional can assist in removing one of the many balls in the air during this difficult time. Book a consult today if you’d like to receive more information and speak with a Mortgage Agent today to assess the feasibility of your file.
