Welcome to the March issue of my monthly newsletter!
Going through a divorce doesn’t mean you have to split from your home
When we tie the knot with our soulmate, we assume it’s going to be forever. It’s pretty much written in the vows. Unfortunately, not all marriages have fairytale endings. In fact, a very significant amount of marriages in Canada end in divorce. The most recent data suggests 38 percent of all marriages in Canada don’t last until death. The average marriage lasts 14 years, with 42 percent of divorces occurring in marriages between the 10th and 24th year.
A typical divorce scenario sees that when the couple breaks up, they sell the matrimonial home and split the assets. In almost all cases, even when one party wants to keep the home, the lawyers, the banks and professionals usually suggest selling the home. It makes sense since most couples get a mortgage they can afford together, not on their own. However, there is a unique alternative very few professionals even know exists.
All three of Canada’s mortgage insurance providers, Canada Mortgage and Housing Corporation, Genworth Financial and Canada Guaranty, offer what’s called a spousal buyout program. Through this program, one party can refinance the matrimonial home up to 95 percent of its appraised value, and pay out any debts related to the marriage.
Traditionally, you can only refinance on an existing mortgage up to 80 percent of the appraised value.
The program is considered a purchase, so all the requirements and qualifications needed in a traditional mortgage still apply. In this case, you will also need a purchase agreement and a separation agreement with all the debts and payments spelled out.
The spousal buyout program is a one-time opportunity. It can be used to pay off other debts outside the separation agreement, but it depends on which one of the three insurers you use.
Even with a helpful loan-to-value ratio, some people still can’t afford to take on the home on their own. The program also allows people to bring on a cosigner, often a new partner or family member.
Speak to a Professional
At the end of the day, divorce is unfortunate. The programs allow you to keep your home, and your kids can stay where they’ve grown up. And that makes the situation at least somewhat more bearable.
If you do find yourself in a divorce and you’re not sure what to do about your home, contact a mortgage broker before making any decisions. They can help you.
Insurance products when you own a home
When it comes to your home, be prepared to be bombarded by a number of insurance products to keep you protected. While it can seem overwhelming, it’s a good idea to get familiar with the basics of some of the insurance you will either need to have, or choose as an option.
Title insurance is an insurance policy that protects residential or commercial property owners and their lenders against losses related to the property’s title or ownership. It is not a requirement in many parts of Canada, but don’t dismiss it outright.
Title Insurance can protect you from existing liens on the property’s title, but it’s most common use is protection against title fraud. Title fraud typically involves someone using stolen personal information, or forged documents to transfer your home’s title to him/herself without your knowledge. The fraudster then gets a mortgage on your home and disappears with the money. Title Insurance is a one-time fee or premium with the cost based on the value of your property. You can purchase title insurance through your lawyer or a title insurance company like First Canadian Title Company.
Mortgage Protection Insurance
Just before you sign off on your mortgage, your broker is required to tell you about mortgage protection insurance. While this insurance is also optional, don’t dismiss it outright. Almost every broker has a story of someone who passed on the extra coverage and tragedy hit. The majority of people skip over getting mortgage insurance for two reasons: they don’t want to spend the money, or they already have some type of life insurance policy through work.
But if you have spouse and kids, you need to think about whether they can carry on with the mortgage payment. If they can’t they’ll be forced to sell. For a few dollars a month extra, it may not be a bad idea. While you think you may be covered through your work, you need to take a closer look at the policy.
Mortgage insurance is a debt replacement while life insurance is an income replacement. You need to understand the difference. You also need to see just how much you’re going to get through your life insurance policy.
Before you close on your home, your lender is going to require you have home insurance. While there are different types of coverage, home insurance generally covers you from damage to the home that is accidental or unexpected like a fire. It can also cover the contents of the home depending on your insurance package. If you’re buying a condo or strata, you’re also going to need similar condo insurance that covers you for your unit.
Just because you have home insurance doesn’t mean you’re covered in the event of a flood or earthquake. Depending on where you live, you may need to purchase additional coverage to be protected from a natural disaster. It’s best to talk to your insurance provider to make sure you’ve got the coverage you need.
Whether you’re home or away on vacation, a few simple precautions can make your home less attractive to burglars. These include: Ensuring your outdoor lighting illuminates all entrances to your home; Cutting back shrubbery discourages burglars from hiding near window and doors; Keeping windows and doors locked at all times; Making certain your garage door is closed and locked; Installing a peephole in your front door; Securing windows and sliding glass doors with auxiliary locks (special door pins, available at home improvement stores, can prevent your sliding doors from being lifted from their tracks during a burglary attempt); Installing deadbolt locks on all exterior doors; and never hiding or storing keys or tools outside.
DID YOU KNOW...
The Home Buyers’ Plan (HBP) is a program for first-time homebuyers that allows you to withdraw funds from your RRSPs to buy or build a home. You can withdraw up to $25,000 tax-free ($50,000 for a couple). Your RRSP contributions must remain in the RRSP for at least 90 days before you can withdraw them under the HBP. Generally, you have to repay all withdrawals to your RRSPs within a period of no more than 15 years. You’ll have to repay an amount to your RRSPs each year until your HBP balance is zero. If you don’t repay the amount due for a year, it will have to be included in your income for that year.