The average sale price of a detached home in Kitchener-Waterloo was $501,821 in January, an increase of 22.7% compared to the same month in 2016. James Craig, the President of the Kitchener Waterloo Associate of Realtors, points out that Waterloo Region is in high demand. “Getting into the housing market at the moment is not easy, and buyers need all the help they can get.”
How can a younger person or family possibly afford to buy a home nowadays? It can take many years, even decades for a person to save enough for a down payment (check out The Globe and Mail’s down-payment calculator).
One way to affording a house in Waterloo region could be to consider co-buying a home. Whether its siblings that partner up to purchase their first home, parents and a child purchasing a house together, or two friends co-buying a home, a Mixer mortgage and co-ownership agreement is one way to make this a possibility.
What are Mixer Mortgages?
Mixer mortgages are like a regular mortgage: payments are due each month, and if payments go into arrears the lender can foreclose on the property. The differences are that mortgages can be split into multiple parts, so one owner can opt for a fixed rate and the other can choose variable. Different amortization periods can be chosen allowing the owners to either accelerate their payments or allow for more economical payments. The mortgage payments can come from separate accounts for the co-buyers’ convenience.
These various options work well to help co-buyers who are coming from, or planning for, different financial situations. An example would be if parents and a child are co-buying a home together. The parents may want to have a much shorter amortization period with a lower variable rate to pay off their share of the house quicker. The child may want a longer amortization period with a fixed rate to keep their payments consistent and lower providing them financial flexibility for other commitments.
Co-owners should keep in mind that mixer mortgages are registered as collateral charges. Collateral mortgages cannot be moved or transferred at maturity, which means the only way out is through a refinance and the homeowners will have to pay for legal and appraisal costs when they want to move. This closes some doors for an easy transfer but does work in certain situations.
What is a Co-Ownership Agreement?
A property co-ownership agreement is a legal document drawn up by an attorney, which should cover who pays for what percentages of the purchase and maintenance of the house. The agreement should outline how the property will be divided if the co-buyers decide to separate or if someone dies. It can also include the division and access to parts of the house or yard, and how any common furnishings are paid for and owned.
It is recommended for any situation involving parties, not protected by a marriage agreement, who want to purchase real estate, including:
- Business partners
- Individuals intending on living in or renting the property being purchased
VanCity, a financial co-operative in British Columbia, has created a co-ownership agreement checklist. It outlines situations that that should be discussed when considering co-buying a home.
Risks of Co-Buying a Home
Although it seems very alluring to buy a home where you’re sharing the costs with family or friends, there are some pitfalls.
What happens if one owner loses their job or gets sick and can’t work? Since the lender can’t foreclose half the property, it becomes the other person’s responsibility to make the mortgage payments or risk losing the entire house.
Another scenario might involve one owner who wants to move. The other owner would have to decide if they want to buy out the available portion or be forced to sell.
These scenarios and more can be covered in the co-ownership agreement, but it’s not always convenient having to make a decision based on someone else. But, if all parties come in with eyes wide open, with a workable plan, co-ownership can work well.
Getting Started on Co-ownership
Contact The Dennis Team and one of our agents will be able to supply a list of lawyers and lenders who can continue to walk you through the process of co-ownership.
We would also be happy to start looking for and providing properties that meet your specific criteria.