Spousal Buyout Mortgages During Separation or Divorce

Going through a separation or divorce and want to keep the family home? A spousal buyout mortgage allows one partner to buy out the other's equity share, and understanding the process can help you navigate this challenging time.

What Is a Spousal Buyout?

A spousal buyout occurs when one spouse pays the other for their share of the home's equity, typically by refinancing the mortgage.

Example:

• Home value: $800,000
• Mortgage balance: $400,000
• Equity: $400,000
• Each spouse's share: $200,000

The staying spouse refinances to a $600,000 mortgage ($400,000 existing + $200,000 buyout) to pay the departing spouse.

Qualification Requirements

To qualify for a spousal buyout, the staying spouse must:

Qualify on single income:
The new mortgage payment based on their income alone must meet GDS/TDS ratios.

Pass the stress test:
Qualification at the stress test rate still applies.

Meet loan-to-value limits:
Maximum 95% LTV for spousal buyout (vs 80% for regular refinance).

The 95% LTV Exception

Normally, refinancing caps at 80% of home value. For spousal buyouts:

CMHC insured buyouts allow 95% LTV:

• Only for matrimonial or common-law breakdown
• Legal separation agreement required
• Must be owner-occupied property

This exception recognizes the unique circumstances of divorce.

What You'll Need

Legal documentation:

• Separation agreement
• Court order (if applicable)
• Property valuation

Financial documentation:

• Income verification (single income)
• Current mortgage statement
• Property tax bill
• Home insurance

Appraisal:
Lender will require current home value confirmation.

If You Can't Qualify Alone

Options if your income doesn't support the new mortgage:

1. Co-signer or guarantor
Parent or family member adds their income/credit.

2. Sell the home
Split equity and each start fresh.

3. Deferred sale
Keep joint ownership temporarily (complex—get legal advice).

4. Rent out a portion
Rental income can help qualification.

5. Extended amortization
Longer repayment lowers monthly payment.

Child Support and Alimony Impact

Child support received:
Can be added to your income for qualification (usually 100%).

Child support paid:
Deducted from your income for qualification.

Spousal support received:
Added to income, often at discounted rate (50-100%).

Spousal support paid:
Deducted from qualifying income.

Timeline Considerations

Start early:
Mortgage approval during divorce takes longer than normal transactions.

Coordinate with legal:
Buyout timing often tied to separation agreement finalization.

Allow extra time:
Budget 60-90 days from application to funding.

Costs to Budget

• Legal fees: Mortgage registration and title transfer
• Appraisal: $300-500
• CMHC premium: If using 95% LTV option
• Break penalty: If breaking existing mortgage early
• Discharge fee: To remove ex-spouse from existing mortgage

Emotional Considerations

Beyond the numbers:

• Is keeping the home in your best interest?
• Can you afford ongoing maintenance and taxes?
• Are you keeping it for the right reasons?

Sometimes selling and starting fresh is the healthier choice.

FAQ

Q: Can we do the buyout without selling or refinancing?
A: Rarely. The departing spouse needs their equity, and removing them from the mortgage requires a new mortgage in most cases.

Q: What if we bought recently and have little equity?
A: Buyouts work best with significant equity. If equity is minimal, selling and splitting may be simpler.

Q: My ex won't cooperate. What now?
A: Court orders can compel cooperation. Work with your lawyer on enforcement options.

Q: Can I use my ex's income for qualification?
A: No—the point is to qualify independently. Only your income (plus any co-signer) counts.

Q: What about the mortgage penalty?
A: Penalties apply if you're mid-term. Factor this into your overall settlement negotiations.

What's Next

Spousal buyouts require careful planning and professional guidance. Work with a divorce financial specialist alongside your lawyer and mortgage broker to ensure you're making the right decision for your future. Start with a confidential consultation.