A mortgage represents the chance to buy a home and begin a new life, but it is also the beginning of a debt that will take years to pay back. The magnitude of the debt is why some home buyers choose to split a mortgage in half and pay it off with the help of another person. Splitting a mortgage can be necessary to afford a home, but it can also cause problems if you don't plan ahead.
Mortgage Agreements and Ownership
The mortgage agreement that you sign when you take out the loan to buy your home may list one or more buyers. If you have a co-signer, such as a spouse, relative or friend, you each own an equal share of the home and bear equal responsibility for paying back the loan. This means that if one person stops paying or moves out, the remaining resident is responsible for the full mortgage payment. Co-signers are also entitled to equal portions of the proceeds from a sale of the home, which can also pose a problem if one co-signer moves out and isn't further involved in paying the mortgage or the sale of the home.
Because everyone involved in splitting a mortgage is legally liable for the mortgage debt, splitting a mortgage can cause problems for some home buyers. To avoid one person being stuck with the mortgage, it is useful to draw up a contract that binds both parties. The contract may state that in the event that one co-signer stops making payments, the other co-signer can take full possession of the home after a specified period. It should also cover what happens in the event of a death or if one co-signer wants to rent out a portion of the house.
Besides sharing the cost of a mortgage, another reason to split a mortgage with someone else is to take advantage of tax benefits. Most people can claim mortgage interest on their primary residence as a tax deduction, but this only applies to homeowners whose names appear on a mortgage. For example, if a woman buys a home while single and later marries, her husband can't claim the mortgage interest deduction even if his income pays the monthly mortgage However, when a married couple split the mortgage and both names appear on the documents, either one can take the deduction, providing another option for tax savings.
Splitting the Loan
Another way to split a mortgage is with a loan known as a piggyback mortgage. Though once popular with home buyers who couldn't afford down payments, piggyback mortgages are relatively uncommon today. They consist of a mortgage loan to cover the majority of the sale price (usually around 80 percent) and another loan to cover the down payment portion (the remaining 20 percent). If you take out a personal loan or use property such as an automobile or another home as collateral to get a loan that you use to make a down payment, you'll be paying two loans concurrently, which increases your risk of defaulting.