The 95% Buyout Nobody Tells Separating Couples About

If you are separating and you want to keep the house, the 80% refinance ceiling that blocks most people is not the ceiling that applies to you. There is an insured buyout that goes to 95% of the appraised value, because the lender treats the transaction as a purchase rather than a refinance. On a $700,000 home that is the difference between being able to borrow $560,000 and being able to borrow up to $665,000. For a lot of separating couples, that gap is the entire question of whether one of them keeps the home or both of them sell it.

Why a buyout is not a refinance

A normal cash-out refinance in Canada stops at 80% loan-to-value. That rule has not moved and it is not going to move for your file.

The buyout works differently. One co-owner is buying the other co-owner's interest in the property, so it is underwritten as a purchase, and purchases can be insured to 95%. The person leaving is the vendor. The person staying is the purchaser. Same house, same address, nobody moves a box, but the paperwork is a sale and that is what unlocks the higher limit.

All 3 default insurers have a version of this. Sagen's published policy is the clearest one to point at: available on purchase transactions up to 95% LTV, both parties must currently be on title, with an agreement of purchase and sale, a finalized separation agreement, or a court order on file to confirm the buyout amount.

It does not have to be a spouse

Almost everything written about this calls it a spousal buyout, and that label costs people money. Sagen's policy widened it to all borrowers on title "regardless of the relationship between those borrowers."

Two siblings who inherited a house together. Two friends who bought in 2021 because neither could carry it alone. A parent who went on title to help a kid qualify and now wants off. Those are all co-owners on title, and one buying out the other is the same transaction. The risk is that a file like that gets read as a refinance by default and capped at 80% without anyone asking whether the buyout structure applies. Insurer policies differ here, so this is worth confirming on your specific file before you plan around it, but do not assume a marriage is required.

What the numbers look like

Take a house in Barrie appraised at $700,000 with a joint mortgage of $500,000. Equity is $200,000, and the separation agreement splits it evenly, so the departing spouse is owed $100,000.

The staying spouse needs $500,000 to clear the existing mortgage plus $100,000 for the payout. That is $600,000, or 85.7% of value.

At the 80% refinance ceiling, the maximum is $560,000. The file is $40,000 short and the house gets listed. Under the buyout structure, the ceiling is 95%, or $665,000, and $600,000 fits with room to spare.

Insured means an insurance premium. At 85.7% LTV the file lands in CMHC's 85.01% to 90% band at 3.10%, so $18,600 gets added to the mortgage, taking it to $618,600.

The Ontario cost nobody mentions until closing

The premium gets added to your mortgage. The provincial sales tax on that premium does not. CMHC states it plainly: premiums in Ontario are subject to provincial sales tax, and the tax cannot be added to the loan amount.

On an $18,600 premium, Ontario's 8% PST is $1,488, and it is due at closing in cash, on top of legal fees and the appraisal. That is a genuinely awkward number to discover 3 days before you close, in the middle of a separation, when money is already tight. Budget it at the start.

The real constraint is income, not the ceiling

The 95% limit is usually not what kills these files. Qualifying alone is.

Two incomes carried $500,000. Now one income has to carry $618,600, and it has to pass the B-20 stress test, which qualifies you at the greater of your contract rate plus 2% or 5.25%, not at the rate you actually pay. Your GDS and TDS ratios get run on that inflated payment against one salary.

A few things move the needle here. Spousal or child support you receive can often be used as income if the separation agreement sets it out and there is a reasonable expectation it continues, and support you pay gets counted against you. Clearing a joint line of credit as part of the buyout can improve the ratios more than people expect. And if the numbers are close, extending the amortization is usually the cleanest lever available.

Run your own version before you negotiate the separation agreement, not after. The affordability calculator will tell you what one income actually supports at stress-tested rates, and the equity calculator will tell you what is really there once the mortgage comes off. If the answer is that one income cannot carry the house, it is far better to know that while the agreement is still being drafted.

What you need before a lender will look at it

A finalized, signed separation agreement, or a court order, or an agreement of purchase and sale. A draft does not work. The agreement has to state the buyout amount clearly, because that number sets the maximum the lender will advance.

Both parties have to be on title now. If your ex was never on title, this is not a buyout, it is a refinance, and you are back at 80%.

You will need a full appraisal. And the proceeds have to go where the agreement says they go, paid out directly through your lawyer. Whether the money can also clear joint debts and mortgage penalties, rather than just the equity share, varies by insurer and lender, so if you are planning to wipe out a joint line of credit in the same transaction, confirm that before the agreement is signed. If it is not itemized in the agreement, it generally cannot be funded.

Two things that cost people the most

The first is signing the separation agreement before anyone checks whether the buyout is financeable. The agreement sets the payout number, and if that number puts the mortgage above what one income qualifies for, you have committed to something you cannot fund. Get the qualification run first and negotiate the payout against a number that works.

The second is forgetting the existing mortgage may break. If you are mid-term on a fixed mortgage, buying out a co-owner can trigger a prepayment penalty, and on a fixed mortgage that can be 3 months interest or an interest rate differential, which are not close to the same number. Ask your current lender for the exact payout figure in writing before you build it into the agreement. Some lenders will let the existing mortgage be assumed or ported instead, which can save the penalty entirely, and that is worth asking about early.

Where this leaves you

If you are on title with someone and you want to keep the property, do not let anyone tell you 80% is the limit. Get the appraised value, get the current mortgage payout in writing, and find out what your income alone qualifies for. Those 3 numbers decide it, and you want all 3 before you sign anything.

Every lender applies its own overlays on top of the insurer rules, and approval always depends on income, credit, and the property. If you want someone to run the actual numbers on your situation, get in touch.