It’s getting harder for younger Canadians to get into the housing market. The Canadian Real Estate Association finds that the national average price of a home reached $716,585 in October — a 48.7% increase over the past five years. With wages not keeping pace with prices, some are considering co-buying a house with a friend or family member.
Those who go that route could wind up getting what’s called a tenants-in-common mortgage. This type of mortgage is an alternative for those who don’t have a spouse or partner but have a friend who also wants to purchase a home.
Tenants in common are considered co-owners of a property. This could be two young adults, a group of seniors, family members, or anyone for that matter. Each co-owner has a specific share of the property and decision-making power that can be split any way they want (such as 50/50, 60/40, or 50/30/20).
It’s important, however, that the percentage each owner holds is specified on the title. If it isn’t, every tenant in common will be entitled to an equal share of the house.
The ownership structure for a tenants-in-common mortgage can be set up as a group of individuals or as a corporation. Using a corporation can make it easier for co-owners when they sell or transfer their share because the names on the property title won’t need to be changed.
With a joint tenancy or traditional mortgage (e.g., you and your spouse buy a home together), each person has an undivided interest in the property and has a right of survivorship, which means the surviving person receives the other’s interest in the property if the other dies. This is common among spouses and common-law partners.
With a tenants-in-common mortgage, however, if one of the tenants in common dies, their share of the property isn’t automatically given to the co-owner(s). Instead, it’s given to the deceased person’s beneficiaries.
It’s possible for co-owners to be joint tenants instead, which can be used to avoid probate fees (which is basically a tax on the value of a deceased person’s estate) and taxes among family members.
There are many things you should think about if you want to purchase a property with someone using a tenants-in-common mortgage. Here are just a few:
Setting up a corporation can be complicated so it’s recommended that you seek professional advice. That said, it will be easier for co-owners to sell their respective shares and for new co-owners to join if there’s a corporate ownership structure in place.
While it may be tempting to get into the housing market with a friend of group of friends to evade high home prices, make sure you understand the risks involved. Otherwise, you might end up in a situation you weren’t expecting.