Buying your first home is a major Australian milestone, whether you purchase alone, with a friend, family member, or a partner.
Buying with someone has its perks, too: having two incomes can often expand the loan amount you’re eligible to borrow and make it easier to save for the standard 20% deposit that not only qualifies you for better interest rates, but lets you avoid paying lenders mortgage insurance (LMI).
Going in with someone you can trust can be a significant help — especially now that property values in today’s real estate market have reached eyewatering heights.
But what does it mean to have a joint mortgage in Australia? And how does joint tenancy affect your home loan?
Let’s dive in.
Joint tenancy vs. tenancy in common
Aside from having important conversations about your home loan budget, desired property market, preferred mortgage features (like fixed rates or offset accounts), and financial situation, it’s important to discuss with your partner whether you want to have joint tenancy or tenancy in common for your new home. These are the two main ways to split up a joint mortgage.
- Joint tenancy is where both partners have an equal share of the property (50/50).
- Tenancy in common is where partners have unequal shares of the property. The ratio can be divided in any way that suits you and your partner (70/30, 80/20, 99/1, etc.)
Neither ownership model is better than the other: it all depends on your relationship and what works best for your situation. There are some things for first time homeowners to consider, however, so it’s vital to seek financial and legal advice.
Right of survivorship
Joint tenants have some legal guarantees tenants in common don’t — the main one being that if someone dies, the surviving joint tenant assumes full ownership of the property. This is called the right of survivorship.
This right can overrule wishes to the contrary in the deceased’s will, however, so it’s important to consider what you want to happen to the property on the event of your death.
Tenants in common have no right to survivorship, meaning the deceased’s share of the property becomes an asset in their estate. However, tenants in common can also sell or rent out their share of the property without needing permission from the other owners, so this model can have some more flexibility.
For instance, de facto couples, or ex-partners holding onto the former family home as an investment property, may choose tenancy in common because it allows more freedom with the style of homeownership.
Mortgage repayments, stamp duty, and other costs
Home buyers have many upfront costs to contend with, as well as ongoing costs associated with paying off a home loan and owning property. This can include but is not limited to:
- Stamp duty
- Principal repayments.
- Interest rate repayments.
- Home loan and lender fees.
- Insurance premiums.
- Council rates.
- Property valuation fees.
- Conveyancing fees.
- Legal fees.
- Mortgage broker fees.
- Capital gains tax and mortgage discharge fees if you sell.
- Refinancing costs.
When deciding which ownership structure is right for you, it’s important to discuss what share of the mortgage costs each partner will pay. If it’s equal, then joint tenancy may be the better option, but if it’s unequal, you may opt for tenancy in common.
For example, some couples choose to assign the higher income partner a smaller share of the property for tax purposes. Others may decide to have the property title in their partner’s name because they find it’s better to apply as an individual due to credit history.
Tip: A home loan’s comparison rate can give you a better idea of its long-term costs than its headline interest rate.
Applying for a home loan with a partner
The home loan application process is largely the same whether you’re an individual or applying as a team — the main thing to remember is that if your partner’s name is on the mortgage and they plan to contribute to mortgage payments, then you both have to qualify for the home loan. The same is true if you later refinance.
This means home loan providers will consider your partner’s credit history and credit score, spending habits, debt, employment and income, and borrowing power, not just yours. If these aren’t up to scratch, it can affect your chances of home loan approval.
Some first steps to take with your partner when applying for a home loan together can include:
- Lowering the limits on your credit cards.
- Shoring up your outstanding debts.
- Getting your documents in order.
Then, it’s a matter of comparing what’s available in your property market and which lenders you prefer.
What happens to a joint mortgage in a breakup?
Sometimes, things don’t work out the way we planned. While no one likes to plan for heartbreak, before you buy, consider discussing with your partner what would happen to your property if you break up or divorce.
The main options for dealing with property during a break-up basically amount to:
- Continuing the mortgage as is.
- Selling the property.
- Buying the other person out.
- Keeping it as an investment property to rent out.
The latter two options require refinancing the home loan and may come with financial hurdles, especially if you plan to continue the mortgage alone.
