Joint Borrowers- A New Phenomenon in Property
Is Sharing to Make Home Ownership Affordable a Viable Option?
Jul 9, 2009
Choosing to go into partnership to purchase a home could be a great opportunity to put an end to rental woes faced by many young people having to deal with the stress of rental property shortages and high rental prices.
It can also be a wealth creation strategy if the partnership is formed to purchase an investment property. This would be especially advantageous if the property being purchased is positively geared.
Mortgage Sharing Options Available
- Siblings- two siblings can purchase a property in partnership even if they both don't want to live in the property. They would each be responsible for half of the home loan. The partnership would roughly be structured under the following criteria:
- They both live in the house. Each pays his/her share of the loan and the other outgoings, maintenance and utilities are shared equally.
- One lives in the house. Each pays his/her share of the loan. The one living in the house would pay the other an agreed rental. The standard outgoings, such as rates, would be equally shared. The utilities will be paid by the person living in the property.
- Neither of them lives in the property and the house is rented to a third party. Each pays his/her share of the loan and the standard outgoings. They get an equal share of the rental.
- A parent and a child- a father/mother and a son/daughter can purchase a property as co-borrowers. Again the partnership will be roughly as for siblings above.
- Other family members- an uncle/aunt and a nephew/niece; two cousins, etc.
- Two friends or two work colleagues.
Legal Implications of Mortgage Sharing
Circumstances change and people change. Therefore, before going into any of the above types of partnerships to purchase a property it is very important for the people concerned to seek legal advice regarding the arrangement.
Irrespective of the relationship status it would be wise to consult a lawyer and put a formal agreement in place. This protects the financial interests of both parties and helps safeguard the relationship. It also removes the likelihood of potential challenges or complications down the track, should the partnership come to an end or change over time.
Some Items to be Covered in a Formal Agreement
- Who would live in the property (both or either of the partners or tenants),
- How the decision on a rental amount is made,
- What happens if one of the partners wishes to get out of the partnership.
Of course, joint borrowing may not be suitable for all property buyers, though it could be a viable option in certain circumstances.
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