Multi-Generational Mortgages: Everything You Need to Know
A multi-generational mortgage, also known as a family mortgage, is a type of mortgage that allows multiple generations to jointly purchase a property. This can include parents, children, or even grandparents.
There are several reasons why families may choose to pursue a multi-generational mortgage. One reason is to help with the financial burden of purchasing a home, as the combined income and assets of multiple generations may make it easier to qualify for a mortgage and afford a more extensive or expensive property. Another reason is to provide a long-term living arrangement for multiple generations, such as when parents or grandparents move in with their children or grandchildren.
There are several different ways that a multi-generational mortgage can be structured. One option is for all parties to jointly take out a mortgage and become co-owners of the property. In this case, all parties would be responsible for paying off the mortgage and share ownership of the property. Another option is for one party to take out the mortgage and the others to contribute funds towards the down payment or monthly mortgage payments. For more information on co-signing a mortgage, check out this helpful guide.
There are a few key considerations to keep in mind when pursuing a multi-generational mortgage. One is to carefully consider the financial arrangements and ensure that all parties are comfortable with their respective roles and responsibilities. It's also important to consider the legal implications of co-owning a property, and to consult with a lawyer, estate planner, or financial professional to ensure that all parties are adequately protected. Additionally, it's important to consider the potential impact on credit scores, as taking out a mortgage and making regular payments can have a positive effect on credit scores, while defaulting on a mortgage can have a negative impact on all parties involved.
Overall, a multi-generational mortgage can be a practical option for families looking to purchase a home together, but it's important to carefully consider the financial and legal implications, and to carefully plan and communicate with all parties involved.
Benefits of a Multi-Generational Mortgage
While multi-generational living is by no means a new concept, rising housing costs have pushed many Canadians to reevaluate their living arrangements, especially in metropolitan centres like Toronto, Mississauga, Vaughan, Burlinton, Ajax, Durham, Brampton, and Vancouver.
With the cost of living growing at a much faster rate than the average salary, younger generations are finding it increasingly difficult to enter the Canadian housing market. While this trend has caused a surge in rental prices, as demand shifts from a buyer’s market to a renter’s market, many millennial and gen-z buyers are still looking for ways to begin building equity from an early age.
Given the decreasing affordability of new homes and the declining quality of long-term care centres, multi-generational mortgages have begun to rise in popularity— with all generations benefiting from their unique advantages. Here are some of the most commonly cited benefits of a multi-generational mortgage:
- Shared Responsibility: With a multi-generational mortgage, multiple family members can share the burden of paying off the loan, which can make it easier for everyone involved to afford the mortgage payments.
- Increased Affordability: By pooling resources, family members may be able to afford a more expensive property than they could on their own.
- Asset Building: A multi-generational mortgage can help multiple generations of a family build equity in a property, which can be a good way to build long-term wealth.
- Shared Living Arrangements: A multi-generational mortgage can also allow multiple generations of a family to live under the same roof, which can have a number of benefits, including increased support and companionship for older members of the family.
- Tax Benefits: Depending on the specific terms of the mortgage, there may also be tax benefits associated with a multi-generational mortgage.
- Greater Range of Options: By pooling together resources from a number of different parties, a multi-generational mortgage can allow you to consider a wider variety of homes by broadening your budget and thereby your price range.
- Family Connection: Multi-generational mortgages allow families to remain together and share in the distribution of domestic labour and home maintenance. Given the current housing market, it is very difficult for younger generations to purchase a separate home near their parents’ existing homes.
Is a Multi-Generational Mortgage Right for You?
While a multi-generational mortgage can be an excellent solution for many, It's worth noting that it is also a significant financial commitment. Before entering into this type of arrangement, it would be wise to carefully consider all the potential risks and benefits. Here are some risks you may want to consider:
- Living Space: Too many cooks can spoil a kitchen, and too many people libing under one roof can create friction. If your family does not get along with one another, especially across generations, you many need to reevaluate whether a multi-generational mortgage is the best choice for you.
- Shared Risk: While a multi-generational mortgage is made more affordable by the ability to share costs, it is important to remember that you are also sharing the risks of a mortgage. What happens if one of your co-signers is unable to make their payments? Who will take over financially in the event of a co-signer’s death?
- Negotiations: Entering into a shared mortgage agreement will require you to negotiate not only with your lender, but also with your family members. Who will claim the home insurance payments on their tax returns? Who is and is not allowed to move into the home? Do you have a guest policy? Who is allowed to enforce it?
- Location, Location, Location: In a multi-generational household, there can oftentimes be conflicting needs and requirements when it comes to the ideal location. School zones may be relevant to new parents, whilst older generations may value walkability above all. It can be difficult to find a home in a location that can meet everyone’s needs.
Beyond a multi-generational mortgage, there are also a few other similar arrangements you can consider. If living directly with family isn't for you, you might want to consider purchasing a house with an in-law suite or many independent apartments, so you can live close to family while still having your own self-contained areas. Living in a multifamily house with friends can also provide some of the same benefits as living with family.
There are also ways in which you can buy your own, affordable, property— despite market conditions. For more information, check out our guide on how to move out of your parents’ house.
If you find yourself overwhelmed by all these different options, the best thing to do is to consult a professional. Our expert team of brokers can work with you one-on-one to analyze your current financial situation, and find a mortgage that is right for you. Contact Clover Mortgage today to book your free consultation!