Joint Mortgage: advantages & disadvantages

Joint Mortgage: advantages & disadvantages

With the growing challenges couples face to buy property, in part due to houses becoming more and more expensive, more and more people are considering a joint mortgage.

What is a Joint Mortgage?
As the name indicates, it is a mortgage that you take out with another person (or many people). It also means you would apply for a mortgage together and assume all responsibilities of the mortgage contract. The most common one relates to spouses or partners buying a house together. However, it is not limited to this group. Friends and investment partners can also get a joint mortgage. In this case, both or all names of the parties involved are on the title.

Why get into a joint mortgage?
The most common scenario is to increase the odds of mortgage qualification. Considering the high prices of homes nowadays, some people have great difficulties getting approved for a mortgage alone, and instead may need another person’s income to help secure that mortgage. On the other hand, homebuyers 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.

Advantages of a joint mortgage
As mentioned above, your chances to get approved for a mortgage increase in a joint mortgage. Income is a key factor in a person’s ability to get approved for a mortgage, and so combining the income with another individual can help boost the odds of approval. There is also the possibility of being approved for higher loan amounts, which means you may also be able to afford a more expensive home. It can definitely increase your buying power and give you more freedom when it comes to the price range you can look at. Considering a joint mortgage also increases your down payment. If you can put a higher amount into the down payment, you will be securing a lower interest rate because of the lower risk for the lender.

Disadvantages of a joint mortgage
Just like in every scenario, there are also some disadvantages to consider when getting a joint mortgage. Whether it is a spouse or a friend’s name in the joint mortgage, it’s always possible for you both to cut ties with each other for whatever reason. It could be a divorce (see our post on divorce), a break-up, or just an end to a friendship. On the other hand, if one partner in a joint mortgage no longer wants any part of the home while the other one still does. In this case, either the interested party must come up with the difference in equity to maintain the home on their own, or the home must be sold in order to give the uninterested party their share of the equity. There could also be the possibility of one person losing their job. The payments need to continue on time. If the other person cannot afford to cover the other person’s portion of the mortgage, the house may need to be sold in order to avoid mortgage default.