Is it a good idea to have a joint mortgage bond with friends or family? Well in the eyes of the bank, this type of mortgage is a safer option for them in terms of making back their money and therefore they will be more likely to grant you a home loan.
The banks apparently prefer this type of arrangement instead of suretyships under which banks can recover debt in cases of default, but normally with great difficulty. As a result, applying for a joint mortgage is smiled upon by the banks due to the fact that more than one person is liable for the debt. Absa is one bank that prefers this type of bond and as a result has no limit to the number of people who take out the bond jointly.
One of the prime markets for co-ownership is the first time buyer market, as well as investor groups. The reason this is so appealing to these markets is due to the fact that the risk is spread. One of the main areas that this type of purchasing is on the increase is in holiday home purchasing. As we only spend a certain amount of time in our holiday homes, then it makes sense to share the cost of the home that you are purchasing.
Another option where co-ownership is something that you should think about is when you are looking to purchase a property as an investment to rent out to someone. This way, should anything happen to the property whilst the tenant is in it; you and your co-owners are all liable.
However, there are a number of factors that you should consider before deciding that it is a good idea to have a joint mortgage bond with friends and family.
First, all partners have to be in agreement with the co-ownership and who gets what percentage. This is imperative as there will be a number of costs involved such as rental patterns, rates and taxes, insurance, and so on. It is therefore imperative that you go in to the venture with a watertight contract in order to safeguard all of the parties involved. This contract also needs to cover issues such as the death of a co-owner; the defaulting of a co-owner, and any other information that you feel that needs be covered by the contract.
One solution to the horrible situation where one of the co-owner dies is to ensure that all of the partners have life policies with linked beneficiaries. Therefore their share of the ownership will be covered in the event of their death. Another issue that needs to be agreed upon is how a partner exits the co-ownership should they wish to. Absa stresses that in any co-ownership mortgage, if one or more partners want out, then the loan has to be reevaluated.
Co-ownership is not something that should be entered in to lightly, especially with friends or family. As mentioned above, there needs to be a water-tight contract that everyone agrees to whole-heartedly in order to ensure that there is no bad blood shed between you and your family/friends. Although co-ownership has many benefits, the downfalls may not be worth it should you enter in to the contract with any doubts whatsoever. This is not something that should be entered in to without great consideration and advise from the financial institution who is offering the loan.
It is also necessary to get a lawyer involved in order to ensure that you have a contract that you all agreed upon. You also need to decide if you are willing to risk your friendship or relationship or if you think it will be strong enough to withstand any pressures that may occur as a result of the co-ownership.