Sandra MacGregor
Kurt Woock
Beth Buczynski
A tenants-in-common mortgage arrangement allows two or more people to share ownership of a property. Each owner has an individual and undivided share, though they may not be equal.
With rising property prices (especially in major cities) it’s becoming increasingly harder for Canadians to afford to buy a home. Buying a house together with someone else using a tenants-in-common mortgage could be a smart solution.
Tenants-in-common mortgage: Pros and cons
Pros
- It’s a way for multiple people to own a property.
- It gives owners the ability to divide ownership in unequal proportions.
- Owners can transfer ownership to others without consent of other owners.
Cons
- If one owner has trouble paying their mortgage, it could place a significant financial burden on the others.
- Managing the property, including addressing unforeseen issues, requires continued cooperation.
- Individual owners have no control over what the other owners do with their share of the property.
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What is a tenants-in-common mortgage?
A tenants-in-common mortgage is when two or more people (or corporations) take out a loan together to buy a property as co-owners. Ownership can be divided in any number of ways. For example, two people could each own 25% of the property and a third person could own the remaining 50%.
All parties in a tenants-in-common agreement must be listed on the property title and sign the mortgage, and each co-owner is fully responsible for the mortgage. Furthermore, each co-owner can sell their share of the property whenever they want unless there are seller restrictions set out in a separate ownership agreement.
Tenants-in-common vs. joint mortgage
| Tenants-in-common mortgage | Joint mortgage |
| Parties can divide ownership shares however they please. | Each party owns an equal share of the property. |
| Tenants-in-common ownership arrangement remains in place. | An owner can unilaterally convert the ownership arrangement to a tenants-in-common arrangement. |
| When an owner dies, ownership passes to any beneficiary named by the owner. If no beneficiary is named, it becomes part of the deceased’s estate. | When an owner dies, the other owner assumes full ownership. |
» MORE: 12 essential tips for first-time home buyers
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How a tenants-in-common mortgage works
The application process is similar to a standard mortgage application. Potential lenders will verify that all parties who intend to sign the mortgage contract are creditworthy and can afford to make mortgage payments, likely by making sure they pass the mortgage stress test. Lenders will consider the same factors as they do when looking at any mortgage applicant, including, income, debts, and credit reports and scores.
Mortgage lenders require that everyone on the title sign the mortgage. However, it will be up to all the co-owners to decide how mortgage payments will be made and how much each person will be responsible for. That’s why when going into a tenants-in-common situation it’s smart to work out an agreement in advance and put it in writing so that everyone knows their monetary responsibilities.
Formally agreeing to rules isn’t required, but it’s a good idea. To ensure the agreement is legally binding, it might be wise to get professional advice and contracts drawn up by a lawyer. While you may be friends with each co-owner at the time you get a mortgage, life (and financial) situations can change, so it’s good to have a binding agreement that sets out everyone’s responsibilities.
Transferring ownership
Each member of a tenants-in-common agreement can unilaterally decide to leave the agreement by forcing a sale of their share in the property.
There is no right of survivorship with a tenants-in-common agreement. That means if one member of the agreement dies, their ownership rights do not immediately and automatically go to the other owners (as they do with a joint tenancy arrangement). Rather, the deceased owner’s share goes to their estate and is distributed according to their will.
» MORE: What happens if you break your mortgage contract?
Alternatives to a tenants-in-common mortgage
Based on your financial situation, you may have the option to choose from several other types of mortgages.
One alternative to a tenants-in-common agreement is to consider joint tenancy, which is where each person owns an equal share of a property, with a right of survivorship. If you believe you would not get approved for a mortgage on your own, another option is to get someone to co-sign your mortgage.
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