But what do you need to know?
It’s time to put away the shorts and sandals and pull out the coats and scarves. Warm weather is fleeting as the temperature drops each day. This time of year is when cottage country starts emptying faster than ice cream cups at fat camp. While the busy period for cottage sales tend to fall in the spring, smart buyers will wait until the autumn season. Why? Because cottage sellers are willing to sell for less, rather than endure the maintenance and carrying costs of holding the property throughout the winter.
It’s obvious from the “we are the 99% protesters” that we are in difficult economic times. So the thought of purchasing a cottage by yourself, combined with the necessary upkeep can be a tall financial order, especially for individuals already paying one mortgage.
The solution: Split the cost with a friend.
The advantages of purchasing a cottage with a partner are obvious, particularly where affordability is concerned. Having a second set of funding reduces your financial burden significantly, plus there’s the added benefit of a second person to aid in property maintenance and keeping the beer fridge well stocked.
The number one concern that should be on your mind is liability and ownership. Undertaking a joint agreement should be taken very seriously. Remember, you’re splitting the mortgage costs with another person and that person has the ability to impact your credit rating. Once all the names are signed on the mortgage, all parties are held accountable for satisfying the mortgage payments. Such arrangements are best handled by a lawyer. Let’s take a look at the two types of legal co-ownership.
This is otherwise known as “The last man standing” and is common among married couples. Joint tenancy states that your share would be transferred to the other owner in the event of your passing. A vital characteristic of this ownership arrangement is called the “right of survivorship”, which means that the title deed is unified with the last surviving member. Only that last surviving partner may pass on the title to another person (via their will).
There are certain aspects that need to happen in a joint tenancy. The title must be received by both partners at the same time and on the same deed. There is an equal share of ownership and an identical right of possession.
Tenants in Common
This type of co-ownership has no right of survivorship; instead the person’s share is passed onto his/her estate (as outlined by the will). The ownership does not necessarily have to be equal; it can be split 70/30 or 60/40 or any other combination that both parties agree to. In the event of your passing, your share is passed to your next-of-kin as part of your estate; nothing is transferred to your partner. Therefore, tenants in common can be viewed as “keeping it in the family”.
In regards to the number of individuals that can hold a title to the property, it is limitless. And each co-tenant has the right to possess the property, meaning neither tenant can exclude the other. To terminate this agreement, the co-tenants may buy each other out or if the property is sold, the proceeds shall be distributed amongst the owners accordingly.
Take care of yourself
Engaging in a co-ownership is serious business, so to remember to always have your back covered. Always ask the “what ifs. You can never get too specific in an co-ownership. There are some options you may implement to protect your interest such as the right of first refusal, right of last offer, or the right to match should you and your co-owner decide to dissolve the partnership.
Splitting a cottage with someone doesn’t mean each party is responsible for their half of the mortgage. If you are buying one property, then there is one mortgage. A $200,000 mortgage on cottage can’t be split up into $100,000 each. If a mortgage payment is missed, then all names on the mortgage are liable, regardless of who didn’t contribute.
Purchasing a cottage with a friend, especially when there are deals like there are now, should be taken on the side of caution first. Get the ownership and financial details sorted out first, then pick which colour the jet-skis should be, not the other way around. A mortgage is a real commitment, talk to a Canadian mortgage broker to get more details. Also, don’t forget to compare mortgage rates with your favourite mortgage bloggers, Ratehub.ca, to find the best interest rate today.