Divorce can make an already complicated mortgage decision even harder. If you locked in a low rate a few years ago, selling your home or refinancing could mean giving up that rate and taking on a much more expensive mortgage. Knowing how to go about sharing a low-rate mortgage after divorce, whether through an assumption, an insured buyout, or tax strategies, could save tens of thousands of dollars in interest.<\/p>\n\n\n\n
So, what happens to the mortgage when a marriage ends? Here\u2019s what separating spouses in Ontario need to know about the legal process and financial risks of keeping or changing the existing loan. <\/p>\n\n\n\n
When a marriage or common-law relationship ends, the matrimonial home is often both the largest shared asset and the largest shared debt. Separating spouses have to decide whether to sell the home, refinance so one spouse can buy out the other, or have one spouse formally assume the existing mortgage.<\/p>\n\n\n\n
Refinancing terminates the existing mortgage contract and replaces it with a new loan at the prevailing rate. If a fixed-rate mortgage is broken before the end of its term, the borrower will typically face a prepayment penalty equal to the greater of three months\u2019 interest or the Interest Rate Differential (IRD)<\/strong>. For a large balance with several years remaining, the IRD can become costly because it is designed to compensate the lender for the interest income lost when the mortgage is paid out early.<\/p>\n\n\n\n An assumption can avoid that reset. If the lender approves the transfer to a single borrower, the existing contract, rate, and remaining amortization can continue. That can give a below-market mortgage meaningful financial value. During a separation, the spouse keeping the home is not simply retaining the property. They may also be retaining years of interest savings, which can become a factor in negotiating the broader financial settlement.<\/p>\n\n\n\n