What Is a Tenants-in-Common Mortgage?

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.

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. Each can sell their share of the property whenever they want unless there are seller restrictions set out in a separate ownership agreement.

How a tenants-in-common mortgage works

Qualification process

Potential lenders will verify that all parties who intend to sign the mortgage contract are creditworthy and can afford to make mortgage payments. This process will typically include a mortgage stress test.

Lenders will consider the same factors as they do when looking at any mortgage applicant, including income, debts, and credit reports, though credit scores will be blended rather than evaluated individually.

Who signs?

Mortgage lenders require that everyone on the title sign the mortgage, but it’s up to the co-owners to decide how mortgage payments will be made and how much each person will be responsible for.

When entering into a tenants-in-common mortgage, it’s smart to work out an agreement in advance and put it in writing so that everyone knows their monetary responsibilities.

Setting expectations

Formally agreeing to rules for each co-owner to follow isn’t required, but it’s a good idea.

To ensure an agreement is legally binding, you’ll want to get professional input from a lawyer, who can also help draw up a contract.

While you may be friends with each co-owner when you sign a tenants-in-common mortgage, life and finances 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.

Tenants-in-common mortgage vs. joint mortgage

» MORE: What happens if you break your mortgage contract?

Tenants-in-common mortgage rates

Generally speaking, a variable mortgage rate might be the best fit for the uncertainty that can come with a tenants-in-common mortgage.

The potential for change increases when multiple people own a home. Some of those changes — a job loss, a new child, relocation — can lead to some (or all) of the co-owners deciding to move on from a property before the end of a mortgage term. Prepayment penalties are often much lower for variable-rate mortgages than for fixed-rate mortgages.

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.