Canada is usually ranked as one of the best countries to live in because of its quality of life. So why do Canadians need a partner mortgage? Although Canada is considered a country with reasonable prices, the cost of real estate here is very high. Even in rural areas outside the city center, the cost of a home is very high. In an effort to lessen the burden, many Canadians tend to take out partner mortgages.
What is a partner mortgage?
It is a type of loan that can be taken out in partnership with another person – you split the mortgage obligations between you. A special contract setting out the rights and obligations of both parties must be signed. Most often, this type of mortgage is taken out by spouses who want to buy a property together. However, it is also possible for friends or business partners to take out this type of loan together. In this case, the names of both parties are mentioned in the title of the property.
Due to high property prices, it may be difficult for a person with a low income to obtain a mortgage. Most likely, a person with poor credit or low income would be rejected by the bank. In this situation, it would be a good choice to take out a partner mortgage. It is not an uncommon situation that lenders give better terms to borrowers, as two borrowers with stable incomes appear more reliable in the eyes of lenders than one borrower. Considering this, many spouses apply for a partner credit to get a lower percentage rate.
Despite the obvious advantages, there are also some negative sides to the joint mortgage that potential borrowers may face.
- More chances of getting approved. A joint income of two people makes it much easier to get a mortgage approved, as there are fewer risks for creditors – even if one of the partners loses their job, the other can continue making monthly regular payments.
- You have the option of getting approved for a higher amount. In a partnership with someone else, you can consider a more expensive house. In this situation, if you present your joint income to the lender, you have more chances of getting approved for a higher credit amount.
- Lower amount of an initial payment. Since a down payment serves as collateral for the mortgage, you will not have to make a large down payment in the case of a partner mortgage. Despite the fact that you are officially entitled to make an initial payment equal to 5% of the total price, it would obviously be a good idea to pay more to lower the percentage for the remaining portion of the mortgage. So, a higher initial payment would help you get a lower percentage rate as you would appear as a more reliable borrower in the eyes of the lender. Moreover, by making a high down payment, you can avoid paying extra for credit insurance.
- Split mortgage obligations between partners. It’s a good idea to know that you do not have to carry such a heavy load as a large loan alone. If you split the payments with your partner, it would make your life a lot easier. And even if you were to lose your job or suffer other unexpected financial losses, you know that your partner will be able to keep up the payments and you will not fall behind.
- End of relationship. Because you share mortgage obligations with your partner, how you further divide responsibilities could suddenly become an issue when you end a relationship. The reasons for this can be many – divorce, separation or a quarrel with a friend. Most often, the ex-partners terminate the term of the agreement and decide to sell the property they bought.
- One of the partners decides to quit. If one of the partners decides to terminate the contract, the other partner is in a difficult situation. The partners should decide if the quitting partner has to pay a certain amount or if the partners have to sell the house.
- One of the partners would lose his or her job. Since both partners make an agreement, they split the regular mortgage payments between them. Should one of the partners lose his or her job, the payment obligations would fall on the shoulders of the other. Should the second partner not have enough money to cover the expenses for both of them, the partners would have to sell the house.
Possible alternatives of the program
If you conclude that the partner mortgage is not the right option for you, you can look for other alternatives. One of the most popular options is to save up for a high initial payment as it allows you to apply for a mortgage loan with better terms – a lower interest rate.
You can also look for some subsidy programs to help Canadians purchase a property. For example, there is the Home Buyer’s Plan, which allows an individual to withdraw a maximum amount of $35,000 from the RRSP account. The program can only be availed by people who are looking to buy a home for the first time.
The other option would be to ask one of your relatives or the closest friend to co-sign for you. His or her involvement would increase your financial strength in the eyes of creditors, but in the event of a default, your co-signer would have to pay your debt.
A more familiar option in Canada is to buy a new home with the option of renting it. The money received from the tenant would be used to cover the monthly payments.
Partner Mortgage FAQs
- If I have already taken out a mortgage on my own, can I add another person to the mortgage?
You can only add another person to the existing mortgage if it was time to renew a loan. The other option is to refinance and apply for a partner mortgage. Before refinancing, however, you should consider the potential fees you could incur.
- Who can I take out a partner mortgage with?
This can be anyone – your spouse, friend, family member, relative, or business partner.
- Can the partner mortgage be converted to a personal mortgage?
Yes, it can. You can have a partner mortgage transferred into your name if you have ended your relationship with a partner or decided to leave a mortgage. However, if you want to have the mortgage transferred into your own name, you should be clear about your financial options.