Co-signing on home mortgages can be performed through joint tenancy, joint tenancy in common and sometimes through a business partnership if the couple co-signing are also business owners. The type of agreement and context of the co-signing can influence the potential benefits and disadvantages of co-singing a loan.
• Joint tenancy
In a joint tenancy there are two co-owners, which implies should something adverse happen to one of the owners, the property becomes the responsibility of the survivor, non-imprisoned, financially solvent or benefactor of divorce proceedings.
• Business partnership
Should the couple co-sign the home loan via a business i.e. a second home that is to be used for business or investment purposes, that property may be subject to different regulation and rules. Consequently, the benefits and disadvantages associated with such a loan may also be varied.
• Joint tenancy in common
In the case of Joint Tenancy in common, the terms of ownership are similar to that of joint tenancy however the ownership does not necessarily pass onto the surviving co-owner in the even to death.
Advantages of Co-ownership/Joint Tenancy
Taking into account the above types of co-singing agreements, co-signing a property and property loan brings a handful of benefits that may make the deal worthwhile. A few of those advantages are listed below with reasons why they are useful
• Financial liquidity and default avoidance: If for some reason, one partner should become sick or incapacitated in some way, having a co-owner can help insure the home is not lost in the case of a missed payment or default due to sudden illness or circumstance.
• Upkeep and maintenance: Having more than one owner can assist in the functionality of a home. Homes often have associated duties, tasks and sometimes repairs and multiple owners may allow more time for such responsibility.
• Tax deductions: If the all or part of the home is operated exclusively for business purposes, that part of the home may be subject to mortgage interest and overhead expense tax deductions. In the case of a couple who do not operate a business, mortgage interest payments can be a potential tax benefit as well.
• 'Rights of survivorship': In the event of death, the property and loan automatically become property of the co-owner in joint tenancy, and the property of the beneficiaries in joint tenancy in common. Depending on who and what the circumstances include, this may be an advantage at least in the sense ownership is clarified.
Disadvantages of Co-Ownership/Joint Tenancy
There are unfortunately also potential disadvantages associated with joint ownership of a home. Whether or not these disadvantages outweigh the advantages is a matter of subjectivity and individual feeling.
• Mortgage assumption
In the case of divorce the loan may be 'assumable' meaning that one co-owner may be removed from the loan and/or replaced with another co-owner if possible. This may be a beneficial clause in the mortgage loan, but may be downright unpleasant should the actual need arise.
• Credit rating
When two or more people co-sign on a loan, the payments related to that loan can affect both owners credit history and records. Should only one party be financially responsible or no agreement be made regarding payments on the loan, a default on the loan could damage two credit ratings instead of just one. (This may also be a benefit should the reverse scenario be true.)
• Psycho-financial independence
In the event of financial co-ownership, a degree of financial independence is essentially lost. For some couples, this may present a psychological level of union that is uncomfortable and/or unwanted.
• Dysfunctional business relationship
While a loan that is co-signed may have been approved in good faith, good intention and with financial responsibility in mind, those things may be no match for a dysfunctional business relationship. A dysfunctional relationship can ruin professional agreements, marital agreements and financial agreements without distinction.
Summary
Co-signing loans between couples have a great deal of potential in terms of financial management, taxes, legal matters and property maintenance. Essentially, if the relationship is strong and likely to continue being strong based on all logical measures of such 'strength of union', the decision of couples to co-own property may be prudent.
To the contrary, there are also certain disadvantages that the couple may want to consider regardless of the strength of their relationship. For example, the couple may find psycho-financial independence to be of more importance than fiscal practicality.
Each situation is unique, and thus the above information may be considered supplemental to the individual situations surrounding a couple's financial, personal and possibly business relationship. In other words, the information contained herein, clarifies potential advantages and hazards that may arise should a couple co-sign on a home loan.
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