Mortgage Refinancing After Separation in Ontario: What You Need to Know

Option 1: One Spouse Buys Out the Other

One common outcome is that one spouse keeps the home and buys out the other’s interest. This typically involves the staying spouse refinancing the existing mortgage to remove the other spouse from the mortgage and title, and paying an amount to the leaving spouse reflecting their share of the equity.

Qualifying for a New Mortgage

To refinance and remove the other spouse from the mortgage, the staying spouse must qualify for the mortgage on their own income. Lenders will assess income, credit, and other financial factors. If the staying spouse cannot qualify, a buyout may not be possible without additional financing arrangements.

Calculating the Buyout Amount

The buyout amount is based on the equity in the home — the current market value less the outstanding mortgage balance and any other charges against the property. An independent appraisal is recommended to establish current market value. The equity is then divided in accordance with the parties’ agreement or the equalization calculation.

Option 2: Sell the Home and Divide the Proceeds

If neither spouse can afford to buy out the other, or if both parties prefer a clean break, selling the home is often the most practical solution. The net proceeds (after repaying the mortgage and deducting selling costs) are then divided in accordance with the parties’ agreement.

Option 3: Continue to Co-Own the Home Temporarily

In some cases, particularly where children are involved, the parties agree to continue to own the home jointly for a period of time — for example, until the youngest child completes high school. This can provide stability for children but requires both parties to cooperate on ongoing mortgage payments, maintenance, and a future sale.

The Impact of Separation on the Mortgage

Separation does not automatically change the mortgage. If both spouses are on the mortgage, both remain liable for the payments until the mortgage is refinanced or the property is sold. If the spouse remaining in the home fails to make mortgage payments, the leaving spouse’s credit will be affected. It is important to address the mortgage promptly.

Mortgage Prepayment Penalties

Breaking a mortgage as part of a separation may trigger prepayment penalties, particularly for fixed-rate mortgages. These penalties can be significant. Before proceeding, confirm the penalty amount with your lender. In some cases, it may be financially preferable to assume the existing mortgage rather than refinance.