In Canada, a joint mortgage is a mortgage between two or more people. More commonly, two partners in a relationship get a joint mortgage but it is also possible to apply for one with a family member.
Applying for a joint mortgage often involves joint ownership of the property and shouldn’t be confused with co-signing on a mortgage. Co-signing on a mortgage does not guarantee rights to the property.
While getting a joint mortgage is certainly appealing if you are in a tough financial situation it’s important to consider the advantages and disadvantages – especially if you plan on getting a mortgage with a family member.
The Advantages of Getting a Joint Mortgage With a Family Member
When you get a joint mortgage with a family member, you can find yourself on an easier path to homeownership. Combining your financial profile with that of a family member presents less risk to mortgage lenders and they are more likely to approve the application.
Co-borrowing may also qualify you for a larger amount so you can focus on buying the home of your dreams as opposed to a smaller starter home. This can also lead to a lower interest rate than you would be able to get when mortgaging alone.
Getting a joint mortgage with a family member can also help you build your credit since payment history tends to account for almost a third of your credit score. A history of on-time mortgage payments can help boost your score and establish you as a responsible borrower.
The Disadvantages of Getting a Joint Mortgage With a Family Member
While there certainly are advantages to getting a joint mortgage with a family member, there are disadvantages as well. A joint mortgage could be disastrous if your situation with your family member changes.
These don’t have to be negative changes either! For example, your family member may decide to move in with a significant other or live somewhere else. Or a new baby or change in occupation could limit funds.
However, it is possible that the relationship could go south and your family member could walk away from the house and the mortgage.
Even if the other party stops paying, you are still legally responsible for the loan amount. They are responsible too but they may not be concerned about facing credit issues or a possible foreclosure.
In the end, you could be left to take care of the full mortgage payments – and just one late payment could stay on your credit score for up to seven years.
Foreclosure, on the other hand, can make it significantly difficult for you to secure a mortgage in the future.
Alternatively, you could have a great relationship with your family member but have difficulty ensuring that they make their portion of the mortgage payment on time. Can you cover the difference if they’re late paying?
Not only is there a huge financial risk when you get a joint mortgage with a family member, but there are emotional risks as well. Combining financial resources and obligating yourselves to a mortgage can create conflict if the payments are not made on time.
Each party is dependent on the other to ensure the mortgage payments are made and on time. There needs to be a lot of trust and careful planning.
Alternatives to Joint Mortgages
Even with the risks involves, getting a joint mortgage with a family member can be tempting when you’re not able to afford a home on your own.
Luckily, there are alternatives you can explore to avoid a joint mortgage:
Co-Sign a Mortgage
As we mentioned earlier, joint mortgages are different than having a family member co-sign on a loan.
Having a co-signer involves getting a family member to add their financial information and credit score to your mortgage application. They will agree to be financially responsible for your mortgage if you don’t make your payments without contributing to the payments or a down payment.
This gives lenders more reassurance that the mortgage will be paid and will help you get approved for the loan.
The First-Time Homebuyers Incentive
The Canadian government offers an incentive that gives first-time homebuyers more purchasing power by allowing the government to pay and own up to 10% of the cost of the home.
The government does not pay for your down payment. Instead, they can lower your mortgage payments by providing an equity-shared interest and payment-free mortgage in addition to your regular mortgage.
This loan must be paid back in full within 25 years or if the home is sold – whichever happens first.
If you’re interested in learning more about this program, click here for more information.
Larger Down Payment or Cheaper Home
When you still need more purchasing power but do not want a co-signed or joint mortgage, you may have to look at putting down a larger down payment or buying a cheaper home.
The best way to purchase a larger home is to save a larger down payment, allowing you to borrow more and save money.
But you can always buy a cheaper home to avoid struggling with your mortgage payments. You can always build equity in a smaller home and upgrade in the future.
Should I Get a Joint Mortgage With a Family Member?
The answer to that question rests entirely on your level of comfort when it comes to committing to this huge financial investment with a family member.
It’s important to take all aspects of joint mortgages into consideration and not jumping into one to make homeowning easier.
However, it is possible to successfully buy a home with a family member – it’s all about trust and being able to have open and honest conversations if any concerns arise.
If getting a joint mortgage with a family member sounds good to you, we are here to help! Our dedicated team at Dominion Lending Centres know mortgages and we can find one that meets your unique needs and situation.