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Protecting Your Credit Through a Divorce

Diane Buchanan • Nov 14, 2019

No secret here, divorces are challenging, there are a lot of things to think about in a short amount of time. Although finances are often at the forefront of the discussions as it relates to the separation of assets, managing and maintaining personal credit can be swept to the side to deal with later. And unfortunately, this can be devastating as you try to rebuild your life down the road.

So, if you happen to be going through or preparing for a divorce, here are a few things you can do to ensure you make it through with your credit intact.

Manage Your Joint Debt

If you have joint debt, you are both 100% responsible for that debt. Your responsibility for that debt continues even if the debt has been allocated to be paid by your ex-spouse in the divorce settlement. A divorce settlement doesn’t mean anything to the lender.

The problem here is if your ex-spouse falls behind on their payments; if the debt has your name on it, your credit report will be negatively impacted for the next 6 – 7 years.

What you need to do is go through all your joint credit accounts and if possible, cancel them and have the remaining balance transferred into a loan or credit card in the name of whoever will be responsible for the remaining debt. You should not have any joint debts remaining.

It’s also a good idea to check your credit report about 3 – 6 months after making the changes to ensure the changes were made. It’s not uncommon for reporting errors to take place.

Manage Your Bank Accounts

Just as you should separate all your joint credit accounts, it’s a good idea to open a checking account in your name and start making all your deposits there as soon as possible. You will want to set up the automatic withdrawals for the expenses and utilities you will be responsible for going forward in your personal account.

At the same time, you will want to close any joint bank accounts you have with your ex-spouse and gain sole access to any assets you have. It’s unfortunate, but even in the most amicable situations, money (or lack thereof) can cause people to make bad decisions, you want to protect yourself by protecting your assets. The last thing you want is for your ex-spouse to drain your bank account.

In addition to opening new accounts, chances are your ex-spouse knows your passwords to online banking and might even know the pin to your bank card. While you’re opening new accounts, take this time to change all your passwords to something completely new, don’t just default to what you’ve always used.

Setup New Credit in Your Name

There might be a chance that you’ve never had credit in your name alone, or that you were a secondary signer on your ex-spouse’s credit card. If this is the case, it would be prudent to set up a small credit card in your name. Don’t worry about the limit, the goal is to just get something in your name alone, down the road things can be changed, and you can work towards establishing a solid credit profile.

If you have any questions about managing your credit through a divorce, please don’t hesitate to contact me anytime. As a mortgage expert, understanding how credit impacts your ability to borrow money in the future is what I work with every day.

DIANE BUCHANAN
 Mortgage Broker

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Fixed-Rate or Variable-Rate Mortgage?

By Diane Buchanan • 24 Apr, 2024
If you're looking to buy a new property, refinance, or renew an existing mortgage, chances are, you're considering either a fixed or variable rate mortgage. Figuring out which one is the best is entirely up to you! So here's some information to help you along the way. Firstly, let's talk about the fixed-rate mortgage as this is most common and most heavily endorsed by the banks. With a fixed-rate mortgage, your interest rate is "fixed" for a certain term, anywhere from 6 months to 10 years, with the typical term being five years. If market rates fluctuate anytime after you sign on the dotted line, your mortgage rate won't change. You're a rock; your rate is set in stone. Typically a fixed-rate mortgage has a higher rate than a variable. Alternatively, a variable rate is not set in stone; instead, it fluctuates with the market. The variable rate is a component (either plus or minus) to the prime rate. So if the prime rate (set by the government and banks) is 2.45% and the current variable rate is Prime minus .45%, your effective rate would be 2%. If three months after you sign your mortgage documents, the prime rate goes up by .25%, your rate would then move to 2.25%. Typically, variable rates come with a five-year term, although some lenders allow you to go with a shorter term. At first glance, the fixed-rate mortgage seems to be the safe bet, while the variable-rate mortgage appears to be the wild card. However, this might not be the case. Here's the problem, what this doesn't account for is the fact that a fixed-rate mortgage and a variable-rate mortgage have two very different ways of calculating the penalty should you need to break your mortgage. If you decide to break your variable rate mortgage, regardless of how much you have left on your term, you will end up owing three months interest, which works out to roughly two to two and a half payments. Easy to calculate and not that bad. With a fixed-rate mortgage, you will pay the greater of either three months interest or what is called an interest rate differential (IRD) penalty. As every lender calculates their IRD penalty differently, and that calculation is based on market fluctuations, the contract rate at the time you signed your mortgage, the discount they provided you at that time, and the remaining time left on your term, there is no way to guess what that penalty will be. However, with that said, if you end up paying an IRD, it won't be pleasant. If you've ever heard horror stories of banks charging outrageous penalties to break a mortgage, this is an interest rate differential. It's not uncommon to see penalties of 10x the amount for a fixed-rate mortgage compared to a variable-rate mortgage or up to 4.5% of the outstanding mortgage balance. So here's a simple comparison. A fixed-rate mortgage has a higher initial payment than a variable-rate mortgage but remains stable throughout your term. The penalty for breaking a fixed-rate mortgage is unpredictable and can be upwards of 4.5% of the outstanding mortgage balance. A variable-rate mortgage has a lower initial payment than a fixed-rate mortgage but fluctuates with prime throughout your term. The penalty for breaking a variable-rate mortgage is predictable at 3 months interest which equals roughly two and a half payments. The goal of any mortgage should be to pay the least amount of money back to the lender. This is called lowering your overall cost of borrowing. While a fixed-rate mortgage provides you with a more stable payment, the variable rate does a better job of accommodating when "life happens." If you’ve got questions, connect anytime. It would be a pleasure to work through the options together.

Understanding the Recent Housing Affordability Measures in Canada

By Diane Buchanan • 18 Apr, 2024
In recent years, housing affordability has become a significant concern for many Canadians, particularly for first-time homebuyers facing soaring prices and strict mortgage qualification criteria. To address these challenges, the Canadian government has introduced several housing affordability measures. In this blog post, we'll examine these measures and their potential implications for homebuyers. Increased Home Buyer's Plan (HBP) Withdrawal Limit Effective April 16, the Home Buyer's Plan (HBP) withdrawal limit will be raised from $35,000 to $60,000. The HBP allows first-time homebuyers to withdraw funds from their Registered Retirement Savings Plan (RRSP) to use towards a down payment on a home. By increasing the withdrawal limit, the government aims to provide young Canadians with more flexibility in saving for their down payments, recognizing the growing challenges of entering the housing market. Extended Repayment Period for HBP Withdrawals In addition to increasing the withdrawal limit, the government has extended the repayment period for HBP withdrawals. Individuals who made withdrawals between January 1, 2022, and December 31, 2025, will now have five years instead of two to begin repayment. This extension provides borrowers with more time to manage their finances and repay the withdrawn amounts, alleviating some of the immediate financial pressures associated with using RRSP funds for a down payment. 30-Year Mortgage Amortizations for Newly Built Homes Starting August 1, 2024, first-time homebuyers purchasing newly built homes will be eligible for 30-year mortgage amortizations. This change extends the maximum mortgage repayment period from 25 years to 30 years, resulting in lower monthly mortgage payments. By offering longer amortization periods, the government aims to increase affordability and assist homebuyers in managing their housing expenses more effectively. Changes to the Canadian Mortgage Charter The government has also introduced changes to the Canadian Mortgage Charter to provide relief to homeowners facing financial challenges. These changes include early mortgage renewal notifications and permanent amortization relief for eligible homeowners. By implementing these measures, the government seeks to support homeowners in maintaining affordable mortgage payments and mitigating the risk of default during times of financial hardship. The recent housing affordability measures announced by the Canadian government are aimed at addressing the challenges faced by homebuyers in today's market. These measures include increasing withdrawal limits, extending repayment periods, and offering longer mortgage amortizations. The goal is to make homeownership more accessible and affordable for Canadians across the country. As these measures come into effect, it's crucial for homebuyers to stay informed about the changes and their implications. Consulting with a mortgage professional can help individuals explore their options and make informed decisions about their housing finances. If you're interested in learning more about these changes and how they may affect you, please don't hesitate to connect with us. We're here to walk you through the process and help you consider all your options and find the one that makes the most sense for you.
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