Buying a home is often the exciting beginning of the next chapter in your life. When you move in, you’ll probably have an idea of your life in that home, what milestones you’ll celebrate, and what goals you’ll accomplish.
Unfortunately, life doesn’t always work out the way we want, and your life in your home might move in an unexpected direction. For example, your marriage might break down. Your partner could experience chronic unemployment, or even die.
If life doesn’t go your way, you might find yourself having to refinance your home on your own. While this may seem daunting, it’s more common than you think. The number of Canadians purchasing and owning homes alone has been steadily increasing. Single-person households are now the most common household type in Canada, rising from 1.7 million in 1981 to four million in 2016. The fastest-growing age group of Canadians living alone is adults aged 35 to 64, and many of them are purchasing homes. According to an RBC Homeownership Poll, 32% of new home buyers are hitting this significant milestone alone.
So if 32% of Canadians can buy a home alone, you can refinance on your own. Don’t be daunted. With the proper research and preparation, it’s completely doable, here’s how.
Let’s Talk Mortgage Affordability
There are plenty of reasons you might need to refinance your mortgage loan alone. For example, you got divorced and chose to keep the home as part of your marital asset split. In that case, you’ll need to refinance your house after divorce and have your spouse removed from the title.
Alternatively, if you’ve suffered the loss of a partner, you may need to refinance your home into your name only and have the deceased partner removed from the title.
Finally, maybe you haven’t lost a spouse but lost their income. In this case, you won’t need to update the title of your home. That said, if you want to access the equity in your home, you’ll need to refinance, and the burden of qualifying for that refinance will fall on you alone.
The first step toward refinancing your home alone is to figure out whether you can afford it. To do this, you’ll need to figure out how much you’ll be refinancing.
Refinancing and Equity Payouts in Divorce
If you’re divorcing, the refinanced amount might be the remaining balance on your mortgage. But it could also be the remaining balance plus an equity payout. Again, it depends on the circumstances of your separation. Here’s an example.
Let’s assume you and your spouse have a home that is worth $500,000, and the remaining mortgage is $250,000. You are both entitled to half of the equity in the home, or $125,000 each. If you prefer to keep the home, you may need to refinance your house after divorce to pay your spouse the half they are owed—in this case, $125,000. When you apply for a mortgage in your name only, you’ll need to add this sum to the remaining mortgage balance. In this case, the $125,000 equity payout to your spouse is added to the remaining mortgage balance of $250,000, for a total mortgage of $375,000. This is known as a cash-out refinance.
The example is simple, but in many cases, the equity split is spread across several financial assets. Your equity split could include property, vehicles, retirement savings, and cash accounts. Once you know how big your mortgage will need to be, you can calculate whether you can afford it.
Refinancing after Spousal Death
Another scenario is refinancing your home after the death of a spouse. You may have received a cash infusion. This cash could come from your spouse’s life insurance or as an inheritance. This cash can reduce your mortgage’s total size and make your monthly payments more affordable for one income.
For example, suppose your existing mortgage is $250,000, and you receive a cash infusion of $100,000 from the estate. In that case, you could use that money to reduce the size of your mortgage refinance amount to $150,000. A smaller mortgage amount is more affordable for a single income. Refinancing like this can be a good strategy if you need to reduce your monthly mortgage payments to an affordable level.
How Much Mortgage You Can Afford – Alone
Once you know the amount you need to refinance your house after divorce, it’s time to determine whether you can qualify for a refinance. You can talk to a mortgage broker or use a mortgage affordability calculator. A mortgage broker can tell you whether you can afford your new mortgage amount and estimate your monthly payments. The broker gets paid by the lender you chose to refinance through, so the process is free.
A mortgage broker will ask for the following information. They’ll then tell you how much mortgage you can afford, according to federal guidelines of affordability. You’ll need your:
- Annual income
- Other debt obligations
- Desired mortgage amount
- amortization period
- The property’s address
- Current mortgage details
What If You Can’t Afford to Refinance?
Using this information, your mortgage broker will provide you with an estimated mortgage payment and the cost to break your current mortgage term early. If the initial numbers don’t work, don’t panic. You have options. You could:
- Extend your mortgage amortization, lowering your monthly payment
- Have a family member co-sign your mortgage
- Take out a smaller mortgage and use other assets to bridge the financial gap
How Refinancing Solo Differs from a Standard Renewal
Once you’ve determined whether you can afford to refinance your home, starting the process is different from a regular renewal. Unlike renewing your mortgage, which requires you to sign your lender’s renewal offer, refinancing is like getting an entirely new mortgage. Whether you refinance with an existing lender or a new lender, you’ll need to submit all of your financial documentation. It will be similar to when you applied for your original mortgage.
Refinancing after a divorce or death adds complexity because you’ll need to provide additional documents to your lender. You’ll also need to hire a real estate lawyer to update the title of your property. Your lender will usually require a signed separation agreement and a signed quitclaim deed for divorce. These two documents prove they should remove the other party from the mortgage and title. They’ll also outline whether there will be an additional payout.
A Checklist for Refinancing Your House After Divorce
If you’re ready to start the refinancing process, here’s what you’ll need to provide your lender:
- Photo Identification – Driver’s license or passport
- Proof of income – Paystub, a letter from employer, and/or income tax returns
- Assets – a complete accounting of your assets, including RRSPs, TFSAs, cash and vehicles
- Debts – A list of your debts and your monthly payments, including student loans, car loans, personal loans and credit card debt
- Credit score – you’ll need to consent to have your lender check your credit score
- Property details – the address of the property and a copy of the original listing, if available
If you’re refinancing due to divorce, you’ll also need:
- Separation agreement – this document outlines how all marital assets are split
- Quitclaim deed – this document is used to transfer ownership of real estate from one party to the other
Is Refinancing a Mortgage Alone Possible?
While you may have purchased your home with another person, sometimes life has other plans. But changing situations doesn’t automatically mean you need to sell your home. If your financial situation allows it, you can stay in the home on your own. The demands of homeownership will fall to you, but if your budget allows for it, solo homeownership is absolutely attainable.
