What is a joint mortgage and how does it work?
A joint mortgage is very similar to a regular mortgage, except that it’s taken out in the names of two or more people, rather than in the name of a sole borrower. Whether you're planning to buy a house with your partner, or with a friend or group of friends, it's important to decide what type of legal ownership structure is best for you. You can either opt to become joint tenants or tenants in common – the key differences between the two types of joint tenancy are as follows:
Mortgage with Joint tenancy
Joint tenancy means that each of you owns half the property - if there are more than two of you, you will each own an equal share of the mortgage. Legally speaking, you are considered to be a single owner and therefore joint tenancy is usually chosen by people in relationships, such as those who are cohabiting, married or in a civil partnership.
If one of you dies, the property (and therefore any mortgage debt that still needs to be paid off) will automatically pass to the remaining owner. Because of this it can be a good idea to take out insurance to ensure that the mortgage will be paid off in the event of one partner dying.
Mortgage with Tenancy in common
Unlike a joint tenancy, owners under tenancy in common are not considered to be one single owner – this makes them the more common joint mortgage option for buyers who are not in a relationship, such as group of friends buying together.
Like a joint tenancy, this means that you each own a share of the property and, if one of you dies, any mortgage debt that is left to pay will pass to the remaining tenants. However, if one of you dies, the property will not automatically pass to the surviving owner or owners. Instead, the property will be bequeathed on based on the details of your will.
Another key difference from a joint tenancy is that a tenancy in common means that you can each own a different share of the property, rather than an automatic half-and-half division of ownership.
Things to consider when taking out a joint mortgage
A joint mortgage of any sort is a major legal and financial commitment. Things to consider before you decide to make the leap include:
- You may need to draw up a cohabitation agreement if you are not married or in a civil partnership. This is an agreement which formally set out the financial arrangements and obligations of your joint mortgage.
- All named owners are equally responsible for making the full monthly mortgage repayment and if one of you falls behind, the remaining owners will be chased for the late payment and their credit ratings can be adversely affected.
- If you buy a property with a partner, bear in mind that you will both be equally liable for meeting repayments if you separate.
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