Amidst rising real estate prices, co-ownership is becoming a more popular option for some Canadians who want to pool their resources to make home ownership more affordable. For instance, two families might purchase a property together or friends who are renting might buy a house jointly. Either way, it’s a good idea for each owner to hire a real estate attorney and create a home co-ownership agreement so that each owner’s interests are protected.
If you’re purchasing a property with friends or relatives and you each want different mortgage terms, a mixer mortgage may be the way to go. In response to this trend towards co-ownership, lenders such as Vancity have introduced mixer mortgages allowing each party to opt for a fixed or variable mortgage and pay the mortgage out of separate accounts. Vancity also has a mixer mortgage co-ownership checklist that outlines the steps co-owners should take including determining the size of each owner’s share, agreeing on who will pay for property repairs and improvement expenses and deciding on a process for dispute resolution if disagreements arise.
Keep in mind, though, that mixer mortgages are registered as collateral charges. Collateral mortgages cannot be moved or transferred at maturity. The only way out is through a refinance, meaning the homeowners have to pay for legal and appraisal costs when they move. This closes some doors for an easy transfer but does work for some people.
For example, some buyers have arranged a mortgage that has a portion as fixed and a portion as variable. For others, it might make sense to have a home equity line of credit as a portion of the total mortgage. For a high-ratio mortgage (meaning you’re borrowing more than 80% of the property’s value), mixer mortgages may become more complicated because of lender requirements.
While mixer mortgages make it possible for some buyers to afford home ownership, they do come with certain financial risks for everyone involved. Consider what would happen if one owner lost her job and wasn’t able to pay her share of the mortgage (enders can’t foreclose on part of the property, so one person not paying could threaten the other owners’ shares). Or if one owner wants to move and the other owners must decide if they want to buy out his portion. Or if an owner died, leaving the surviving owners to cover a larger share of the mortgage. For that reason, it might be wise for owners to purchase life insurance to cover their share of the outstanding mortgage balance just in case.