Refinancing to Remove an Ex-Spouse From Your Mortgage in Ontario

After a separation, one spouse often wants to stay in the family home. That usually means two things have to happen: the other spouse comes off the mortgage, and the other spouse comes off title. They are related, but they are not the same step.

This article walks through how keeping the home generally works: qualifying on your own, paying out your ex-spouse's share, getting released from the mortgage, and changing title. Lender rules and family-law details vary, so treat this as a map to bring to your lawyer and lender.

Two different things: the mortgage and the title

The mortgage is your debt to the lender. Title is who legally owns the property. Your ex-spouse can be on one, the other, or both. How each one is handled depends on the lender and your documents, so it is worth confirming with a lawyer.

A lender generally wants to know that the person who stays is able to carry the debt alone. That is why keeping the home is usually tied to a refinance or a new mortgage in your name only, rather than a simple change on title.

• Mortgage: the lender decides who is released and on what terms.
• Title: a transfer is registered so that the ownership reflects the agreement or court order.
• Family-law paperwork: a separation agreement or court order usually sets out who keeps the home and what is paid. A lawyer can confirm whether other consents or statements are needed.

Qualifying on your own

The lender will look at your income, debts, credit and the property value as one person rather than two. Support you receive or pay may be treated differently by different lenders, so ask each lender how it counts those amounts.

If you are shopping for a new lender, note that switching can involve an appraisal, a discharge of the old mortgage, registration and legal fees, and new mortgage insurance premiums if the loan amount or amortization increases.

Insured-mortgage rules have changed recently and may change again. How they apply to you depends on your situation, so it is worth confirming with a lender or mortgage broker.

Paying out your ex-spouse's share

If the agreement says you keep the home, whether and how much you pay your former partner for their share depends on the agreement or court order, so a lawyer can confirm what applies to you. A refinance is a common way to raise that money, because the new mortgage can be larger than the old one and the difference is used to pay your ex.

Be aware of costs on the old mortgage. Prepayment charges depend on the contract; open mortgages allow extra payments without penalty while closed mortgages limit them. Federally regulated lenders must set out prepayment charges in an information box in the mortgage agreement. FCAC's sample disclosure shows a prepayment charge equal to the greater of three months' interest or the interest rate differential. Your own contract controls, so read it before you break the mortgage.

Discharge costs also add up. FCAC says lender discharge fees typically range from no charge up to $400 where unregulated, and lawyer or notary fees for a discharge are typically $400 to $2,500.

Release from the mortgage and the title transfer

How a refinance affects your ex-spouse's obligations under the old mortgage depends on the documents and the lender, so it is worth confirming with a lawyer. If you keep the existing mortgage, the question is whether the lender will release your ex-spouse from it. Whether a lender will do so, and on what conditions, depends on the lender and the mortgage terms.

Land transfer tax is payable when the transfer is registered, and transfers between spouses are taxable unless an exemption applies. The spousal exemption covers transfers between spouses or former spouses in three situations.

For separation-agreement and court-order transfers, the value of the consideration is any consideration given plus the amount owing on the encumbrances. The Ontario land transfer tax rates are 0.5% up to $55,000, 1.0% from $55,000 to $250,000, 1.5% from $250,000 to $400,000 and 2.0% over $400,000, with 2.5% on the portion over $2,000,000 for land with one or two single-family residences. Whether your transfer qualifies depends on the facts and documents, so have your lawyer confirm. Toronto has a separate municipal tax with its own rates.

What to do next

• Get your separation agreement or court order in final form, with the home and payment terms stated clearly.
• Ask your current lender what it requires to release your ex-spouse and what it would charge to do so.
• Ask a lender or broker whether you qualify alone, and compare any new lender's costs against your current mortgage's prepayment terms.
• Request a written payout figure from the current lender, since most lenders do not send a payoff confirmation unless asked.
• Have a lawyer confirm land transfer tax treatment, any family-law consents, and the order in which the refinance, payment and title transfer should close.

If you cannot qualify alone, talk to a lawyer before missing payments. Missing a regular payment is a default and may eventually lead to a forced sale of the home.

Frequently asked questions