Divorces, Family Buyouts and Mortgages

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Summary

(Oct 30, 2020) Transferring ownership and equity of matrimonial or multi-generational family homes could get very complicated. But with the right team in place and understanding of some key points you can get it done with relative ease.

The following is discussed in this episode:

>for the 6th consecutive week 5 year fixed rates are available for as low as 1.79%. Even lower rates are available for no-frills products (I’ve seen rates as low as 1.64%). One other rate promo to be aware of -> 1.89% for a 5 year fixed, but no interest for the first three months (and it’s not tacked on to the mortgage either! This is the real deal, no smoke in mirrors). Enjoy the savings and the reduced mortgage payment, or lump sum the difference directly into your principle to accelerate your amortization!

>More on interest rates and promotions: Last week I wrote that the Bank of Canada (BOC) will be discontinuing its purchase of bonds, but they have since renewed their commitment and simply scaled back their commitment from $5 Billion in bond purchasing per week to $4 Billion…this means continued low fixed rates! Also, this week, BOC announced they will be keeping prime rate at 0.25% for the unforeseeable future…some are speculating as long as 2023. So, cheap money is here to stay for a while longer! Last time money was this cheap was…never.

How to remove a spouse (or family member) from your mortgage:

With the divorce rate in Canada at 50%, this is a common inquiry that comes across my desk. Whether its a marital breakdown or a family member buyout this piece of mortgage surgery can be done with virtually every lender in Canada – there’s just a couple of key points to be aware of:

(i) Is there a substantial buyout involved to the other party? If not, the success rate is 100%…easy peezy. If there is a substantial buyout, proceed to points (ii), (iii), (iv) and (v) below

(ii) Loan to Value Ratio (LTV) – the LTV will determine whether you proceed as a refinance or a purchase. If you can refinance up to 80% LTV and extract the amount needed for your buyout, this will be the cheapest way to go (this will save you thousands of dollars in equity from the hit you would take by incurring a CMHC/GE premium if you had to go above 80% LTV).

(iii) Regardless of your LTV and whether or not an insurance fee is incurred, you also need to be aware of a break penalty if you will be doing this prior to the maturity date of the mortgage. Heads up.

(iv) Also worth considering if you have to go past 80% LTV is porting your mortgage. Porting a mortgage is a fair bit more complicated, but definitely worth considering as you can potentially save in break fees and insurance premiums (if applicable).

(v) If this is a result of a divorce/separation, the mortgage will definitely be subject to a formal separation/divorce agreement that will need to include the terms of the property buyout. The separation/divorce agreement must precede the mortgage approval as the funds will not be advanced without it.

My favourite economist is Benjamin Tal.

I’ve always been a fan of Benjamin Tal as he was a regular speaker at all of my conferences when I was with CIBC back in the 90’s. Like all economists, he’s insightful and delivers complex information with tact…but, what made me a fan was the tone of conviction in his delivery. The guy is entertaining…and quite often, correct. Here are some quotes (dated September 2020) about his thoughts on why Canadian real estate has been able to withstand one of the most challenging economic conditions of our time:

“Eighty percent of jobs lost were in the service sector. Many of them were low-income and many of them were renters. So the impact was on rent as opposed to home ownership.”

“We’re seeing a situation where home ownership actually went up. Why? Because 25% of Canadians are telling us that they’re considering buying another unit during this recession. Why? Because their job is still there and the interest rates are in the basement. That’s an opportunity that they’ve been waiting for and that’s why we’re seeing some demand come from domestic homebuyers, not foreign”

“Canada receives 350,000 immigrants, annually…and in 2020, apparently 45% of them are already here <— their status is changing, but they’re already in the country consuming real estate and rental inventory”

“3.5 million Canadians are living abroad and pondering a return to Canada (most of which are in the United States)…also, 400,000 Canadians in Hong Kong are pondering a return, as well. This is more recently highlighted with evidence of Chinese money entering the Canadian market from Hong Kong.”

“About 100,000 Canadians leave Canada for the US on an annual basis…but not this year. This is yet another impact of the market”

So in summary, the demand for real estate in Canada kinda makes sense (when you factor in all of Ben Tal’s compelling thoughts), especially due to “the compensating factors of non-permanent residents, returning citizens and people who don’t move to the U.S.”

That’s all I got. Check in next week for more.

Marko Gelo Garage Band Sessions: (produced and performed my Marko)

“Glorious Day” …intro song (2:27) <-70’s drum beat
“Out in the Rain” …outro song (3:59) <- 90’s band that Marko played in, “Sleeping Lorry”
all instrument and vocal tracks performed by Marko Gelo
music tracks arranged and produced by Marko Gelo