In our last blog, we shared in detail about joint mortgages, their terms, kinds of co-ownership, and more. Exploring the topic a bit further, we now look at some of the benefits and limitations of joint mortgages. Knowing there is a great way to make an informed decision before taking up a joint mortgage.
Advantages
Less fee and larger down payment: As you may know the minimum down payment required towards a home is 5 percent of its value, and if you seek a mortgage with a down payment which is minimum, you will have to pay the mortgage default insurance, a tool which protects the lender, if and when the borrower defaults. But when you seek a joint mortgage with a friend or a sibling or another relative, the size of this down payment can be increased because of the double paying power. This will, in turn, decrease the mortgage default insurance premium and your equity in the home will rise too.
Bigger purchasing power: Just as in the case of down payment, when you apply for a joint mortgage, the income of all the parties is considered along with their credit scores, debts, etc for the lending assessment. So joint mortgages tend to be larger as more than one person makes the monthly payment and hence mostly they are able to pay at least double the amount a single borrower would be able to pay.
Responsibility sharing: The joint mortgage is a win-win partnership in which costs like maintenance, can be divided too, and hence the financial burden on each of the joint owners decreases. But this is true only for mortgages in which all the joint owners are paying. If there are silent joint-owners then there is no such responsibility sharing.
Limitations
The difference in opinion: It is very important to have the same vision as the co-owners of a property. Since mortgages mostly have an amortization period of 25 years, all co-owners must intend to keep the property. There may come a time when one of the partners wants to get married and move out or move jobs to a different country or other such situations. You need to discuss what happens in such an event.
Non-payment terms: Life is full of eventualities and the joint-owners may face a time when they are unable to make the mortgage payments due to loss of employment, death, or other such unforeseen factors. You must discuss what happens in case of such events. For the latter, joint life insurance is a great way to secure the interests of the house owners.
Conflict of interests: Mortgages make the co-owners enter into a financial commitment which is a big one. You should take your own nature and relationship with the co-owner into consideration before signing a joint mortgage. Any conflict of interest especially with friends or siblings can lead to problems with the mortgage.
If you want to explore joint mortgages further or are looking for any kind of mortgage support, write to us at LendX.