HOW DIVORCE CAN SIGNIFICANTLY IMPACT JOINT MORTGAGES AND REFINANCING OPTIONS

Divorce can have a significant impact on joint mortgages and refinancing options and often create complex financial situations for both spouses.  Here is an overview of how divorce affects these financial aspects:

1.     Both parties remain liable - If you and your spouse are on a joint mortgage, both are legally responsible for the payments, even after divorce. This means that both names remain on the mortgage unless one party buys out the other or the loan is refinanced.

2.     Selling the property - One common option is to sell the home and split the proceeds, which can resolve mortgage obligations.

3.      Refinancing the Mortgage - Qualifying for refinancing, the spouse seeking to keep the home must qualify for a new mortgage or refinance based on their financial circumstances. This includes passing Canada’s mortgage stress test, which ensures the borrower can afford payments even if interest rates rise.

4.      Credit Score Considerations - If mortgage payments are missed during or after the divorce process, it can negatively impact both spouses' credit scores, as they are both liable until the mortgage is refinanced or sold. This can impact you on your future mortgage applications.  After a divorce, the spouse applying for a new mortgage will have to qualify based on their individual financial situation. Their debt-to-income ratio, credit score, and employment status will all be considered.

5.     Tax Implications - Capital gains tax: If the home is sold, capital gains tax usually doesn’t apply to a principal residence. However, if one spouse moves out and no longer uses the home as their principal residence, they may be liable for capital gains on any appreciation from the date they moved out.

Understanding these aspects can help you navigate the financial complexities of divorce and homeownership.