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How do joint mortgages work?

How do joint mortgages work?
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Taking out a mortgage is probably the biggest financial commitment most people will ever make. And that’s why rather than doing it alone, people often choose to share the responsibility. It’s increasingly common for people to join forces with their partners, family members or friends. They do this by taking out a joint mortgage.

In this article, we’ll look at how joint mortgages work, and the pros and cons of taking one out.

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What is a joint mortgage?

A joint mortgage is simply a mortgage that you take out with another person. You might take it out with your spouse or civil partner, a friend, a family member or a business partner.

In most cases, you take out a joint mortgage with just one other person. Some lenders allow up to four people to sign up for a joint mortgage.

How does a joint mortgage work?

When you take out a joint mortgage, all parties will usually be named on the property deed and will be jointly liable for the mortgage debt.

That means that if one of you fails to keep up with their share of the repayments, the other party or parties will have to make up for the shortfall.  

So it’s wise to ensure that the person you’re signing up with is someone trustworthy and responsible with money.

What kind of joint mortgages are there?

1. Joint tenancy

Here, each one of you will have equal rights to the whole property. If the property is sold, profits will be split equally between the two of you.

If one partner dies, the other will automatically inherit the property.

This type of mortgage is often taken out by couples who would want a property to automatically transfer to their partner if they passed away.

2. Tenants in common

This option is often suitable when buying a home with a friend, a family member or a business partner.

Here, each party in the partnership owns a legally separate and specific share in the property. The shares don’t have to be split equally and can be in whatever percentage the partners want. Partners can sell their shares in the property separately.

Tenants in common can also leave their share of the property to whomever they want in their will.

Should I take out a joint mortgage?

Taking out a joint mortgage has advantages and disadvantages.

Advantages

  1. You can get a better rate. Combining forces with someone with good financial credentials like a good credit score can boost your chances of getting a good mortgage rate.
  2. You can borrow more. By combining incomes with a partner, you can apply for a larger loan.
  3. Shared responsibility. Rather than taking on an enormous financial responsibility alone, a joint mortgage lets you share the load with someone else.

Disadvantages

  1. Possible lower rate: If the other person has a poor credit score or generally poor financial credentials, it could lead to getting a less than favourable rate or even being denied a mortgage.
  2. Possible credit score damage and legal action. If the other person fails to hold up their end of the deal, leading to late or missed repayments, your credit score might be impacted and you could even face legal action.
  3. Ownership problems: Should one partner die or want to move on, it can open up a can of worms regarding ownership and what to do with the property. 

Can I get out of a joint mortgage?

Yes. Circumstances can change and one party might want to leave the joint mortgage.

For a joint tenancy, things will probably be straightforward as the outgoing partner can be bought out, or the property can be sold with each person then taking their share of the profits.

If you take out your mortgage as tenants in common, things could prove to be a little more difficult. This is especially the case if you can’t decide how the value of the house should be divided. You might have to take the matter to the courts, which can be quite expensive.

If you choose to sign up for a mortgage as tenants in common, consider finding a solicitor first and asking them to draw up ‘deed of trust’ that specifies the percentage of the property that each of you owns. This could avoid problems and misunderstandings down the road.

Takeaway

If you want to share the financial responsibilities of owning a home, a joint mortgage can make sense.

However, keep in mind that shared responsibility comes with added risks. Weighing up these risks against the potential benefits can help you figure out whether taking out a joint mortgage is worth it.

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