Navigating Joint Mortgages in Canada

Navigating Joint Mortgages in Canada

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By Loans Canada

With the high cost of homes in most major Canadian cities, becoming a homeowner as an individual can be expensive and even unreasonable in many cases. This is why so many consumers choose to apply for a joint mortgage with a significant other, family member, or close friend. Keep reading if you’re interested in the idea of co-buying a home with someone you know. 

What Does It Mean to Co-Buy a House?

As its name suggests, a joint mortgage (otherwise known as a co-owned mortgage) is when two or more would-be homeowners pool their financial resources and apply for a mortgage loan together. Interested homebuyers will often do this because it can be very difficult to get approved for a large mortgage with only one household income. 

However, with a combination of two, or more, solid incomes, assets, and credit scores, mortgage lenders tend to have more faith that you and your co-homeowner(s) will have an easier time keeping up with your payments. As a result, a larger mortgage with better terms and interest rates may be on the table for anyone willing to take on the responsibility.

What Types of Joint Mortgages Can You Get?

Generally speaking, co-homeowners can apply for two types of joint mortgages:

Joint Tenant

A joint tenancy mortgage is the more popular co-homeownership option, particularly among spouses and common-law partners. Essentially, you and the other homebuyer will split your debt down the middle and have equal claim over the property. You cannot sell, refinance, or renovate the home without your co-owner’s approval.

In the unfortunate event that one of the homebuyers passes away, all rights to the property, including any mortgage payments that remain, will be transferred to the other co-owner. So, even if potential inheritors (children, etc.) were listed in the deceased’s will, they must first get permission from the surviving co-owner to have any mortgages or assets on the property put in their name.  

Tenants in Common

More frequently seen among family members, friends, and business partners who are financing a home together, a tenancy in common mortgage allows co-homeowners to buy different shares of the property. Unlike a joint tenancy, the mortgage does not necessarily have to be divided proportionally. One buyer can invest more than another. 

In this scenario, the shares of the property would not automatically go to the other co-owners if one of the homebuyers dies with an inheritor named in their will. However, if no valid will or other binding document is found, the normal estate laws will apply, which often means their portion of the property goes to their next of kin. 

If you’re the co-owner of a tenancy in common mortgage and wish to relinquish your share of the property, you can draw up a trust deed, which allows you to sell it to one of the other buyers. Otherwise, tenancy in common mortgages are accompanied by a “trust of sale” agreement, meaning the whole property will have to be resold if a co-owners decides to sell or passes away with no heirs.

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How Does Your Credit Score Relate to Your Joint Mortgage? 

Since a joint mortgage can lead to all homebuyers owning equal shares of the property and loan debt, everyone’s credit reports will be examined during the approval process to confirm that they can make payments on time. Because you’re “financially associated”, your co-owner’s name will show up on your report after you apply (and vice versa). 

Unfortunately, if either of you has a bad credit score (600 or under) or a history of unpaid debts, it will negatively affect your ability to get approved. So, even though your combined financial strength will make it slightly easier to get a mortgage, you may still get denied if one co-buyer is considered a higher risk. 

Joint Mortgage Approval – The Bottom Line 

All this said it’s important for any potential joint homebuyers to have good credit, little to no existing debt and a strong income when they apply. Just like a normal individual mortgage, the healthier your combined finances are, the easier it will be to get approved for a large loan with a good repayment plan and a more affordable interest rate.

Joint Tenancy vs. Tenancy in Common vs. Individual Mortgages   

  Joint Tenants Tenants in Common Individual Mortgage
Property Share  Equal (50/50) Varies based on share agreement Sole Ownership (100%)
Ownership After Death Shares automatically transferred to surviving co-owner Shares given to heir(s)/next of kin or sold to surviving co-owner(s)  Shares given to heir(s) or next of kin
Down Payment  5% minimum (20% recommended) 5% minimum (20% recommended) 5% minimum (20% recommended)
CMHC Fees Larger down payment = lower fees Larger down payment = lower fees Larger down payment = lower fees
Purchasing Power Higher combined income/credit/down payment = more buying power Larger shares may require better credit/income/down payment Higher individual down payment/income/credit = larger mortgage amount

Advantages and Disadvantages of a Joint Mortgage

Before you apply for a joint mortgage in Canada, it’s important to weigh the benefits and drawbacks of this type of home financing, such as the following:

Benefits

  • Larger Down Payment – You and your co-buyer(s) can combine your incomes for a bigger down payment. If you can come up with at least 20% of the final asking price, you won’t have to purchase CMHC mortgage default insurance.
  • Tax Benefits – Any co-buyers who use the home as their primary residence and have their names on the property agreement can qualify for an income tax rebate. In addition, land transfer taxes can be divided amongst co-owners, so everyone will save a few dollars and pay a fair share.
  • Larger Loan Amount – As mentioned, combining multiple incomes and savings means that you can qualify for a larger mortgage and purchase a larger house or choose a more expensive neighbourhood. 
  • Shared Expenses – Splitting a home between multiple buyers doesn’t just have mortgage benefits. You can also divide up all your other household expenses, such as property taxes, utilities, repairs, etc. Plus, your combined incomes can make it easier to add value to the home with improvements and renovations. 

Drawbacks

  • Responsibilities & Disagreements – Simply put, it can be hard to live with other people, especially if everyone doesn’t see eye to eye. There’s always the chance that arguments can arise when it comes to deciding how household tasks, mortgage payments, and other expenses should be handled.
  • Difficulty Walking Away – Once everyone’s names are on the property agreement, it can be very complicated and expensive to back out of the deal, no matter the reason. So, if there is ever a divorce, separation, or falling out between co-owners, all parties could be subject to penalties.
  • The Effect On Your Credit Score – When dealing with a joint mortgage, it’s important that all parties make their payments on time. If one borrower misses their turn, it will affect the credit scores of all borrowers. Trust and communication are very important when it comes to co-buying a house.

Bottom Line

Combining incomes, down payments, and credit scores can help co-buyers purchase the house of their dreams. A joint mortgage is a helpful financial tool, especially considering the high cost of real estate in most major Canadian cities. Just keep in mind that with more than one borrower, trust and responsibility will play an important role.  


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