When the marriage comes to an end, there are two obvious options concerning the home, 1) sell the property and split the proceeds according to your agreement and go your separate ways, or 2) one of the parties buys the other party out of the mortgage and thus the title of the property.

The first option is a straight-forward transaction, you put the house up for sale, sell, split the proceeds.  The second option is slightly more involved and needs further explanation.  The decision between the options is a personal one borne out of the specific circumstances of the parties involved.  Perhaps there are young kids involved that need to stay in the house, the market is down and there will be a loss on the property that neither party can afford, one party can afford to buy the other party out, etc.

Once the decision is made, how do you go about buying the other person out of a mortgage?  Well essentially, you are refinancing your mortgage using a single income (whomever is buying the other party out of the house) and qualifications, versus the original purchase which was joint.  If you are the one buying your partner out, the first step is to ensure that you can afford the mortgage payments.  This is imperative because the Lender will ask for proof that you are capable of covering the mortgage in order for you to apply on your own.  In addition to covering the mortgage amount, you will have to come up with whatever dollar amount you have agreed on to buy the other partner out, this may come out of the equity in your home if it is sufficient.

In essence, if you can afford the mortgage on your own, the most common means of buying out your partner post-separation and transferring title out of the joint name and into your name, is to refinance.

If you are not in the financial position to buy your ex-partner out of the house, and you agree to both stay on title and have payment arrangements, their is one warning to be taken very seriously.  Just because one person is responsible for the payments (even with a court-order), if the mortgage is defaulted on, both parties on the mortgage will be affected.

The most important piece of advice when dealing with a mortgage during a separation is to get informed! Know your options, talk to professionals about your options, and make an informed decision regarding your home and mortgage.

• Renovate if…you love the neighborhood, your house can be renovated to meet your needs, you can’t afford to buy the house you want or need,
• Move if… the neighborhood no longer satisfies your needs, your home cannot be renovated to suit your needs, you are not willing to live through a renovation or you do not have access to people who can renovate it

Most decisions in life have in some form or another financial ties.  In this situation the question becomes, how do I finance my decision?  If you choose to renovate, there are many home construction and renovation loans that are available to help you do this.  Another option is a home line of credit that affords you the flexibility of a line of credit that can be paid off very quickly or in an extended length of time.

If you choose to buy, you would most likely be needing a new mortgage for your new home, if you cannot port your existing mortgage to your new home.  In this instance you will be presented with many options that may suit your needs ranging from fixed rate products to variable rate products with a range of terms and amortization periods.

The bottom line is: look at your finances to see what you can afford, perhaps consult your mortgage advisor to help you figure out what your options look like on paper.  The next step, depending on your financial situation, is to evaluate your answers to the questions above to determine whether you would like to renovate or move.  Once you have completed these two steps, you are on your way to upgrading your home, either by renovating or moving!

The average sale price of a home last month in Canada was $306,366. Based on a 25% downpayment and a 25-year amortization, your monthly payment would be $962.61 at 1.35%. Convert that to a five-year fixed-rate term and you’re probably going to have to consider a 4% mortgage rate and a monthly payment of $1,289.04.

Rates are rising fast. Most major banks upped their five-year rate by 40 basis points this week, although discounters were still offering 4% this past week. “It’s not a mass rush yet, but we are starting to see … people locking in. But variable rates are still so good,” says Joan Dal Bianco, vice-president of real estate-secured lending, TD Canada Trust. She stops short of questioning why a consumer would pull out of these “deals” that are no longer available on the market.

Try to get a variable-rate mortgage today and the best you can probably hope to get is 60 basis points above prime, or 2.85%. The landscape changed dramatically in October during the credit crunch. As the Bank of Canada lowered rates, the major banks reluctantly lowered prime because of the massive amount of customers with variable-rate products negotiated under the old, higher terms. “Bonds yields are going up rapidly and people are starting to realize the rates are going to go up,” Ms. Dal Bianco says.

Throw in the fact the Bank of Canada used the weasel word “conditional”(on inflation rates)when it promised not to raise rates until June, and you can understand why some
people think today’s record-low prime rate might not hold. But if you’re someplace between 60 to 90 basis points below prime, the rate is going to have to go up pretty fast to justify locking in today at 4%, even though that is just slightly above the all-time low hit last month for a five-year term. “I don’t understand why you would lock in,” says Jim Murphy, chief executive of CAAMP. “Sure, if they start to rise, but [Bank of Canada governor Mark] Carney says they won’t rise, so you’ve got another year at that prime-minus rate.”

Don Lawby, chief executive of Century 21 Canada, says even when rates do start to increase, they are not going to jump significantly right away. You are not going to get 4% on a fixed rate again, but double-digit rates seem unlikely. “The only logic two locking in would be for someone very sensitive to any rate change and they just want to be secure,” Mr. Lawby says.

But at what price? If you’re using the “feeling secure” logic, why not go for the 10-year fixed-rate product? Rates on that product can be locked at 5.25%, ridiculously low by historical standards. Yet fewer than 10% of Canadians consider a 10-year product.

There are some compromises you can make. For starters, there is nothing to prevent consumers from having a blended mortgage at most Canadian banks. Some banks will let you take half your outstanding debt and lock it in. Diversity is preached for stock portfolios, but few people seem to adhere to the same philosophy when managing their debt. Consumers might want to take their cue from business. Few companies would want all of their debt coming due at the same time — it presents too much risk. The other option is knocking down principal: Make payments based on a 4% rate and have that extra $300 go straight to your principal every month.

The bottom line is if you’ve got a deal on your mortgage, why would you give it back? Dusty wallet Double check your credit card statements. DW is in a bit of a skirmish with Visa over a taxi cab bill. Of course, DW is too cheap to use cabs, but does succumb to them to get to and from airports on vacation. Last trip, the family took an airport limousine and paid the $56 charge. Guess what? The same amount was billed a month later. So far, the taxi cab company has yet to produce a second receipt. In the interim, DW had to pay the second $56 charge.

Gary Marr, Financial Post Published: Saturday, June 13, 2009

What is causing BC’ers to carry more debt than their other Canadian counterparts?  The cost of real estate is partly to blame.  Real Estate in BC, specifically the Lower Mainland accounts for a higher percentage of household debt than in other parts of Canada.  Specifically, people carry bigger mortgages in BC than they do in other parts of Canada.

In addition to real estate, the lackadaisical attitude that people in the western world have developed in regards to household debt is a common contributor.  People are getting used to living day-to-day on borrowed funds; rather than living within their paycheck means. Rock Lefebvre, the vice-president of research and standards for CGA-Canada states, “There is no doubt that access to credit has been one of those very influential indicators. And the other thing that has changed a lot is people’s behaviour towards debt. There has been a big change in how people view debt, and how they view money.”

“What Canadians told us when we surveyed them is they are spending more on discretionary items, and that can range from plasma televisions to a coffee in their favourite coffee shop in the morning,” he said.

What is the moral of the story? Canadians in general, but specifically people in BC need to scale back their spending in the face of the slowing economy.  BC’ers need to be aware of where their income is and how to manage their lifestyle within their income limits, versus using credit to maintain their lifestyle.