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As housing affordability becomes a growing cause of concern, individual home buyers are finding it harder to step into the property market despite low-interest rates on home loans, thanks to increased prices and high home loan deposits.

But the Australian property buyers are not deterred. To overcome this obstacle, more and more Australians, especially younger ones, are joining hands (and pockets) with spouses, lovers, siblings and even friends to take out a joint mortgage for purchasing their first property, and more.

In a recent analysis by Commbank, it was revealed that the number of mortgage applications with two or more applicants has increased to 67% in 2016 from 64% in 2014. Applications forwarded by single applicants are petering out.

Online mortgage place HashChing further revealed that approximately 90 percent of the first home buyers using the platform are applying for joint home loans, a significant increase from 61 percent at the beginning of 2016.

joint-mortgages-on-riseJoint Mortgage: Meaning

In order to break into the steely property market, co-owning a property may be your only solution. Under this arrangement, two or more individuals co-own the property while putting together their savings towards a larger home loan deposit and a joint mortgage. However, as ideal as the plan may sound, it is fraught with risks unless you understand the process properly and obtain individual legal advice.

What are the joint mortgage options possible?

Two or more prospective home buyers can either hold the property as joint tenants or tenants in common. Another option is to take a guarantor loan in case of low home loan deposit. However, we suggest you use this option only if you are sure you’d be able to service the loan, as you have two properties at stake – yours and your parents – and thus, more to lose.

Joint tenants

Usual for married couples and those in long-term de-facto relationships, joint tenants hold the property jointly and equally, with no single owner having any individual rights in the property.

On death of any one of the joint tenants, the remaining joint tenants inherit the property equally, irrespective of any will by the deceased.

Tenants in common

Tenants in common mortgage is an option for friends or family members buying property together, each holding a share in the property equal to their contribution in it.

It must be understood that lenders do not limit the liabilities of tenants in common according to the share they hold. Each tenant in common is individually responsible for the entire debt. What happens if one party stops making the repayments?

To avoid this, each party must take individual legal and financial advice and set up a declaration of trust before entering into a joint mortgage. This document will lay down, among other things, the procedure for sale of the property if any party changes their mind, notice requirement, distribution of sale proceeds, etc.

How a joint mortgage affects your future?

1. Reduced borrowing capacity – Consider the case of Sam and Joanne, they took a joint loan of $400,000 for a property. While each of them contributed half the share of money and own the property equally, Sam recently decided to purchase another investment property and was surprised to learn that lenders counted her liability at $400,000, not $200,000 as she had believed.

In order to know how much you can borrow, use our borrowing capacity calculator to calculate it.

2. Joint and several liability – Further, as mentioned above, in case any party defaults in making their part of the payment, the other borrowers will be liable to make good the payments. Even if one party defaults, penalty interest and foreclosure by the bank is also a possibility.

One of the major benefits of joint mortgage is that it can get you your first foothold in the property market, but it is an option that must be approached with caution.

With lowest home loan rates in history, the time may be ripe to apply for a home loan and start building your investment property portfolio sucessfully. However, if you are considering a joint mortgage, while you can save more by getting in touch with brokers for competitive home loan deals and compare mortgage rates online for low home loan rates, do not save on proper legal advice. Whether it is a friend, sibling or a joint mortgage with a family member, it is important to seek independent legal and financial advice before jointly owning a property.

By Vidhu Bajaj

 

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HashChing is helping Australians by providing access to the pre-negotiated home loan deals. Obligation free consultation with one of our partner brokers might save you time, hassle and money.