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Multigenerational Mortgages

Multigenerational homes are a great way to keep a property in the family. This arrangement is not new to our society; intergenerational living has existed since early human history and continues to be a cultural norm in many parts of the world — and it’s gaining popularity in Canada. This shift raises questions about home ownership and mortgage responsibility. Let’s explore what multigenerational mortgages are, how pre-approval works, and essential tips to keep in mind. 

What’s a Multigenerational Mortgage?

A multigenerational mortgage is like a traditional residential mortgage. It allows multiple generations of a family to share the ownership and responsibility of a single property. This arrangement can help parents and adult children purchase a house together when they don’t have the financial means to do so alone.

Why Multigenerational Living Is Becoming More Popular

A 2022 report showed that 43% of Canadians find that high real estate prices are a barrier to entry into the market. As housing prices and inflation has risen faster than wages, homes have become less affordable for younger generations, resulting in the need to pool resources. Alongside this, the COVID-19 pandemic forced many to cohabit with their families — whether an adult child moved back home or an older parent moved in with their children. 

Here are some other reasons multigenerational homes have become increasingly popular:

  • Older generations may want to be closer to their kids and grandchildren.
  • Longer life expectancies in Canada mean that older adults may not need to move into a retirement home or assisted living facility until they are much older and can receive the support they need from their families while maintaining independence.
  • In a world where globalization and technology allow more people to live and work far away, owning a home together can maintain or even strengthen family bonds.

Advantages of a Multigenerational Home

Although not for everyone, there are many benefits to living in a multigenerational home. For example:

  • Down payment: Gathering financial resources allows you to make a larger down payment when purchasing a home. Generally, the more you pay upfront, the lower your monthly mortgage payments.
  • Convenience: When you have multiple generations living in a household, this can mean access to free childcare, home care for older adults, and more support with household duties and chores.
  • Tax credit: As part of the Canadian government’s initiative to make housing more affordable, the Multigenerational Home Renovation Tax Credit can give up to $7,500 to support renovations for multigenerational living purposes, like building a secondary suite for a senior family member or adult with a disability. This credit came into effect on January 1, 2023.
  • The type of house: Access to more financial sources means you may be able to afford a bigger home to accommodate more people.
  • Shared expenses: More income means more sharing of household expenses. For example, monthly payments, bills, routine maintenance, and renovation costs can be more manageable when each person holds some financial responsibility.

How Pre-Approval for Multigenerational Mortgages Work

In Canada, two types of mortgages facilitate multigenerational homes: Joint tenancy and tenants-in-common.

  • Joint tenancy: All parties have an equal interest in the property; therefore, mortgage responsibility is shared equally. 
  • Tenants-in-common: Allows each party to have a different share of ownership. For example, 25, 25, and 50% split between three people means that mortgage responsibility can correspond with these individual percentages.

If you’re considering a multigenerational mortgage, the first step in this process is to get pre-approved by a lender with the help of a Mortgage Broker. They will review your financial situation to determine how much they’re willing to lend you. 

To get pre-approved, you’ll need to provide information about yourself and your co-borrowers, whether they’re your kids, parents, or grandparents. Documents to provide include the following:

  • Proof of income: Pay stubs or tax returns show how much you make and help determine how much you can afford.
  • Credit score: Your credit score gives an idea of how likely you are to repay your debts on time. The higher your score, the better your chances of getting pre-approval.
  • Assets and liabilities: Assets are things you own that have monetary value, such as a house, car, or savings accounts. Liabilities are any debts you owe, like credit card balances, student loans, or car loans. Both can help evaluate your overall financial situation and debt-to-income ratio. 

Once you’ve gathered all the necessary documentation, you can apply for pre-approval. Keep in mind that pre-approval does not guarantee approval. Instead, it gives you an idea of your budget when house hunting, allows you to narrow down your search, and can help you negotiate better deals. 

Must-Knows About Multigenerational Mortgages

While multigenerational homes are an excellent option for many people, there are some things to keep in mind before committing to the arrangement:

Be Aware Of Who You’re Living With

Ensure that all family members have a good track record and will follow through with their responsibilities. If one person fails to make their payments, it could impact your credit and financial stability. 

Consider Writing Up Legal Agreements With A Solicitor

To avoid accountability issues, consider drawing up an agreement around missed payments, approved occupants, tax returns, the death or moving of a party, and estate planning.

Understand What Will Happen If Someone Leaves

Depending on your agreed terms, the remaining parties may be required to take on the rest of the mortgage if one of the co-borrowers moves out.

If a co-owner passes away, the ownership and mortgage are typically transferred to the remaining owners if you have a joint tenancy agreement. However, with tenants-in-common, since each person owns a share, the beneficiary listed for the deceased will become the new owner of that part of the property. They can continue to make payments or sell it.

Moving out or the death of an owner may also require you to requalify for your mortgage.

Speaking to a Professional

If you have questions about multigenerational homes and mortgages in Ottawa, the Chris Allard Mortgage Team is here to help. We have extensive experience and access to many lenders to find you and your family the best options. Contact us today to learn more.

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