A home loan is likely to be the biggest debt you’ll ever have, with the home or land for which you have the mortgage, likely to be one of your biggest assets. The majority of Australians who have a home loan own it jointly with a partner, spouse, family member or friend. This means home loans are an important consideration for relationships.
Three in five mortgages are held jointly, so it is critical to understand your rights and responsibilities if the relationship breaks down with your co-borrower. The two ways of taking out a joint home loan are as joint owners or ‘tenants in common’.
Joint home loan
Couples most commonly have home loans as joint owners. This means that if one person dies, the property automatically goes to the surviving person. This kind of joint home loan is ‘joint and severally liable’ which means that all people on the loan can be held liable for the entire amount of the loan. People with an abusive partner often encounter significant problems with home loans, especially if they try to leave their abuser. If this happens, it is important to seek legal advice.
Like other joint accounts, mortgages can be ‘one to sign’ or ‘both to sign’. When a mortgage is ‘one to sign’ or ‘either to sign’, any account holder can access money, for instance held in redraw facility, without the other person’s formal consent. When an account is ‘both to sign’, all account holders must agree (or ‘sign’) for a person to access money in the account, or to make other changes.
If at any point, you become concerned about what your co-borrower might do, you can contact your bank or lender to talk through options with them. For instance, you could request the lender make the account ‘both to sign’, to prevent your co-borrower from redrawing money.
Tenants in common
‘Tenants in common’ is a form of joint home loan which means two or more people take out a mortgage and are liable for their share of the property and associated debt. In the event of their death, a co-owner can bequeath their share in the property to any other person.
This form of co-ownership is more commonly seen among family members and friends. Disagreements can arise about how to split costs, when to sell, whether a co-owner should be bought out, and whether to refinance.
If you are considering a ‘tenants in common’ agreement, all parties should get independent financial and legal advice.