Purchasing a house in Canada, whether you wanted to live in a big city or a smaller town has increasingly become more and more expensive. Homeownership nowadays is no longer a reality for many younger Canadians, unsurprisingly, the joint mortgage has gained popularity.
What is a Joint Mortgage explained
You may possibly guess, a joint mortgage is a mortgage that you take out with another person. In most cases, you would apply for a home loan together and assume all responsibilities of the mortgage contract. This mostly involves a joint mortgage is when spouses or partners buy a house together. friends or investment partners may also get into this type of agreement. In this case, both or all names of the parties involved are on title.
Joint mortgages put into in an effort to increase the odds of mortgage qualification. Considering the high home prices are these days, some people may not be able to get approved for a mortgage alone, but instead may need another person’s income to help secure the home loan. Not only that, but some people also use joint mortgages to get lower interest rates and better terms on a home loan contract as a result of a higher combined income, or to take advantage of one borrower’s better credit score and financial health.
Joint mortgages can be very helpful for many borrowers. However, some potential drawbacks that all borrowers should know about before entering a joint mortgage with another person.
Advantages of Joint Mortgage
Increased odds of mortgage approval. For combined income between two to three people can make it easier to buy a property. One of the key factors for a person to get approved is their income. If one person’s personal income is not enough to afford a certain home, combining their income with another individual can help boost the odds of approval. Married couples and business partners do this type of mortgage loan for fast approval.
Approved for a higher amount. Joint ownership can increase your chances of getting a mortgage approval, but you can afford a higher home price along with a higher loan approval to finance your purchase. Getting a joint mortgage can increase your buying power to give you freedom when it comes to the price that you can look at.
Smaller down payment. Down payments required to secure your mortgage can be as low as 5% of the home price. While you are eligible to put up a small down payment, however as a first time home buyer, we suggest , that you put down a much higher percentage like 20% interest. This will help you minimize the loan-to-value ratio that will help you to reduce the mortgage interest and the amount you owe to your lender. Not just only a lower interest rates you may secure, it will also prevent you from paying a mortgage default insurance.
Shared maintenance. Maintaining a home takes a lot of time, effort, and money. Joint tenants, allow you to share these responsibilities, then you won’t have to shoulder the burden entirely on your own. All the maintenance and repairs that are required can be shared, as can all the utility bills. Giving you some peace of mind knowing that you’re not on your own with these responsibilities.
Disadvantages of Joint Mortgages
Along with the advantages of joint mortgages, there are also some issues with joint mortgages.
What are the Disadvantages of having a joint mortgage
A falling out may occur between joint partners.
One person wants out. If one person in a joint mortgage no longer wishes to pursue the home while the other one still does, this could pose a problem.
One person loses their job. The arrangement is dependent on both parties maintaining an adequate income to be able to afford the combined mortgage. However, if one person loses their job, this could be a major issue when it comes to continuing to pay the mortgage on time.
Joint Mortgage Alternatives
There are some alternatives that you may get for a joint mortgage.
Wait and Save Up a Larger Down Payment
You may delay your purchase of a house by several years, if you can’t afford a repayment on your mortgage on own, you should think about saving up a larger down payment. A large down payment will make your mortgage payments affordable. 20% will help you get home payments more affordable and will guarantee that you won’t have to pay default mortgage insurance.
Look Into The First-Time Home Buyer Incentive
The Home Buyers’ Plan (HBP) allows Canadian consumers, who are buying a home for the first time, allows to withdraw up to $35,000 from their RRSPs to put toward the cost of the home. Participants should be first time home buyers and repay the money within 15 years.