“Two is always better than one”
And no, we’re not talking about that Taylor Swift song. Long before the teen pop star was born, it was considered unconventional to purchase a property with anyone other than your husband or wife. Today, these traditional ways are becoming a distant memory. Home buyers no longer consist of bachelors and married couples. Today’s prospective buyers include friends and non-married couples. According to some reports, the number of those who have either bought together or would consider doing so, is as high as 55%*. And with property prices at record high levels, especially in Ontario and British Columbia, it’s no surprise that some feel the only way into homeownership is with some help.
Here are some notes on splitting a mortgage:
Advantage of sharing a mortgage
Better Affordability – The most obvious advantage of sharing a mortgage is the increased buying power that comes from two incomes.
RRSP Home Buyers’ Plan – Assuming you and your partner both qualify as first-time home buyers; each of you can withdraw up to $25,000 each, for a total of $50,000, tax free.
Double the availability of money – With access to two banking accounts, coming up with the funds for closing costs becomes less demanding.
Furniture – By combining the belongings of two people, it reduces the need to purchase new furniture for the house/condo.
Disadvantage of sharing a mortgage
Commitment – Purchasing a property is not something you can renege once the dotted line is signed. It is a commitment that could last 30 years!
Credit Rating Vulnerability –Co-signing with a partner positions both your credit ratings (almost) in the same boat. The mortgage must always be paid on-time, so if your partner loses their job or passes away, it is still your responsibility to cover the mortgage, otherwise, expect your credit rating to take a hit.
Break-ups – Not all relationships last, whether it is friendship or romantic. If the other person decides to leave, it will leave you with a full mortgage to pay. If you both agree to sell the property and give up the mortgage, the cancellation fees can be substantial.
When claiming the First-Time Home Buyer’s Tax Credit as a couple, the combined amount claimed cannot exceed $750.
An Example of the Difference
A single person attempting to buy the average home in BC would need $588,000! Using our Mortgage Affordability Calculator we’re able to determine that a single person must have a gross income of $109,000 – not exactly the typical salary. However, if you and your partner make half that amount each, then finding a property at the average BC home price becomes more realistic. It is more common to find two people making salaries of a combined gross income of $100,000.
Assuming monthly debt payments of $100 (credit cards); $500 (car payments); and $200 (other loans). Living costs were estimated by the calculator.
Variable Rate Mortgages
If both of you decide to get a variable rate mortgage, you assume the risk of rising rates and a possible increased mortgage payment in the future. But with two incomes, it becomes much easier to shoulder the cost of the rate increase. Most first-time home buyers opt for fixed rate mortgages because of the security to their mortgage payments.
When considering sharing a mortgage with a partner, it might be wise to consider practicality over sentiment. A mortgage is a huge responsibility that requires your full commitment. If you’ve determined that you need your partner to purchase a property, consider the lyrics from the song mentioned earlier: Maybe it`s true/That I can`t live without you. Purchasing a home solo is a heavy financial burden, but you should never put yourself in a situation where the idea of owning a home is more important than the means to get there. Home ownership shouldn’t be decided on a whim or emotionally. It’s a huge financial obligation. Make sure you’re ready to commit, otherwise, you could end up losing your home in addition to your credit rating.
Two is always better than one when it comes to mortgage affordability – assuming you’re willing to take the risks. If you’re looking to purchase a property by yourself, it’ll require smarter budgeting and perhaps smaller expectations, unless of course you’re Taylor Swift. In which case, you’re only property woe is that creepy neighbour who keeps inviting you over for dinner. Leave her alone Charlie Sheen.