Considering a joint home loan: Yes or no? What to do if I break up after purchasing a house?

• Potential future complications, such as prolonged disagreements and obstacles, highlight the importance of careful consideration before committing.

With housing costs on the rise, many Malaysians are opting for joint property purchases with family or friends, often facilitated by a joint home loan, to tackle the market challenges.

This strategy, prompted by soaring prices, eases financial burdens by sharing economic responsibilities and simplifying loan access through joint home loans.

However, is joint property ownership through a joint home loan the wisest choice?

Potential future complications, such as prolonged disagreements and obstacles, highlight the importance of careful consideration before committing.

It’s essential to weigh both the benefits and drawbacks before deciding on joint property ownership with a joint home loan.

Considering purchasing house in joint names

• 1. Advantages of buying a house in joint names
• 2. Disadvantages of buying a house in joint names
• 3. What should I do if a joint purchase of a house falls through?

1. Advantages of buying a house in joint names

1. With more people, there is more power, and there are more choices for buying a house

Buying a property with others provides greater financial resources, enhancing your purchasing power compared to buying alone.

This translates to a broader spectrum of options when selecting a property. In essence, pooling funds enables access to properties in prime locations, boasting superior aesthetics, greater spaciousness, and higher price points.

By purchasing a house jointly, you can share both the cost of the property and the mortgage with others, easing your financial burden even if you opt for a higher-priced property.

Furthermore, joint ownership provides you with additional funds for house decoration, allowing you to enhance its aesthetics.

This investment in beautification can elevate the property’s value, leading to higher rental returns and capital appreciation over time.

2. High approval rate for joint home loan applications

Recently, banks have become stricter in approving joint home loans, closely examining applicants’ ability to repay mortgages based on factors such as monthly income and existing debts.

Typically, individuals encounter substantial hurdles when seeking approval for joint home loan to purchase a home.

When purchasing a home together, the situation changes. Banks assess the repayment ability of all applicants combined, reducing the risk of loan default and boosting approval chances.

Consequently, exploring joint home loan options from multiple banks concurrently can enhance your likelihood of securing approval.

3. Lower loan interest rates for joint home loans

When purchasing a house, individuals typically dedicate years of hard work and savings to amass approximately 10% of the home’s price as a down payment.

However, when multiple individuals join forces to buy a property, they can combine their resources to make a more substantial down payment, ranging from 15% to 20% or even higher.

A larger down payment not only minimises the loan amount needed from the bank but can also result in a lower interest rate on the loan.

Additionally, utilising funds from housing provident fund accounts to increase the down payment can lower the loan amount and possibly decrease the interest rate.

In such circumstances, homebuyers can secure more favourable loan terms, easing the burden of future repayments.

2. Disadvantages of buying a house in joint names

1. 90% of the mortgage loan is wasted

According to Bank Negara Malaysia (BNM) regulations, applying for a joint home loan might appear convenient for approval, but there are specific limits on the allocation for properties bought by one person or jointly owned:

• For the first two-room residential property, applicants can seek a loan of up to 90%.
• For the third residential property, the loan eligibility is capped at 70%.

If you opt for joint homeownership and a 90% joint home loan, you forfeit the opportunity to qualify for the same loan percentage individually.

This also applies to your co-buyers. Initially, two individuals could each secure a 90% loan twice, but now, there are only two such opportunities available.

Furthermore, if you plan to invest in a third property, you’ll only be able to apply for a maximum 70% mortgage from then on.

2. First purchase discount is half off

The Malaysian government has introduced various measures to help first-time homebuyers, including affordable housing projects, stamp duty exemptions until 2025, and mortgages covering up to 110% of the property value.

However, if both you and your partner are first-time buyers, only one of you can enjoy the first-time homebuyer discount.

Consider this scenario: Suppose you and another first-time homebuyer have the chance to purchase an affordable home.

If you both opt to buy separately, each of you can acquire one home, resulting in a total of two properties.

However, if you decide to pool your resources and purchase a home jointly, you’ll only acquire one affordable property.

Essentially, this implies that whether you intend to jointly or independently purchase additional properties in the future, you will no longer be able to enjoy these benefits.

3. Wasted the once-in-a-lifetime RPGT exemption

The Malaysian Inland Revenue Board manages the Real Property Gains Tax (RPGT), which taxes profits from selling property. Each Malaysian citizen gets one exemption when selling their home.

If you jointly own a home, both owners can use this exemption when selling. But if you buy separately, each person can benefit from their own exemption when selling.

4. The credit ratings of both parties are closely related

Although a joint loan can increase your approval rate for a loan application, all borrowers must have a good credit history.

If your co-signer has a history of not paying debts on time, it could affect your home loan approval, even if your own credit history is good.

Before getting a joint mortgage for buying a house, it’s smart to check both parties’ creditworthiness carefully. This involves examining each party’s credit scores, debt status, including timely repayment of existing loans, and any other financial commitments.

If you’ve secured a bank loan and understand it well, you won’t need to fret over the other party failing to repay the mortgage later on.

Want to check your credit history? It can be viewed via CCRIS and CTOS.

5. After the breakup, it’s really troublesome

When you buy a house jointly with someone else, there’s a big worry about what might happen if your relationship changes.

This could be due to things like a breakup, fights, or ending a partnership, which can create tough situations.

Imagine a young couple breaking up after buying a house. Now, they have to figure out what to do with the mortgage and the house itself.

They might disagree about selling it – one person wants to sell, but the other doesn’t. This kind of disagreement can be really hard to sort out.

And if any of these problems happen, it makes things even harder to deal with!

a. One of the parties declares bankruptcy

If a co-owner faces financial difficulties, the Malaysian Poverty Alleviation Board steps in to handle their property issues, including their ownership share. In these instances, the reporting agency can select from various options.

• Auction and sale of the party’s share of property rights;
• Freeze and take over the property rights shares and other assets of the party until it pays off its debts;
• Negotiate with other joint buyers to jointly purchase that party’s share of the property or to jointly sell the property.

No matter which method is adopted, it will cause great trouble and inconvenience to other joint homebuyers.

b. One of the parties loses the ability to work or dies in an accident

If one co-owner can’t pay the loan due to job loss or death, it can cause issues.

When getting a home loan, people usually need two types of insurance: Mortgage Reducing Term Assurance (MRTA) or Mortgage Level Term Assurance (MLTA).

MRTA protects the bank if the borrower can’t pay due to disability or death. MLTA repays the mortgage in case of death or disability.

With these insurances, if your co-owner can’t pay due to an accident, you’re only responsible for half the loan repayment.

Joyce Yeoh, a real estate agent of IQI, shared this issue in her video:

 

 

 

 

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3. What should I do if a joint purchase of a house falls through?

1. Sell the house and divide the proceeds equally

If irreconcilable differences do arise, perhaps the most straightforward solution is for the joint owners to sell the property.

After selling the house, the proceeds will be divided fairly based on each co-owner’s share of property rights. This will also dissolve all legal obligations associated with property rights and loans.

This approach ensures fairness and justice and resolves unpleasant situations that may arise because of property rights disputes.

By ending all legal responsibilities, each party will be released from obligations related to real estate and loans, allowing them to start anew without burdens.

2. One party buys the house from the other party

If you wish to sell the property, but the other joint party does not agree, you can suggest selling your 50% share to the other party to achieve a mutually satisfactory result.

To achieve this, you need to follow a process similar to that used to buy or sell a second-hand home. You and the other party need to sign these agreements:

• Sale and purchase agreement: This contract will clearly stipulate that you are willing to sell half of your property rights to the other party, as well as the relevant sale conditions and price.
• Loan agreement: If the buyer needs to take out a loan to pay for the home, these documents will ensure the legality and transparency of the transaction and provide legal protection to both parties.

3. Remove joint home loan owner name from property

If you have changed your mind and want the property to belong to you only, you may consider taking the other joint party’s name off the property.  

It also indicates removing them from the joint home loan. 

However, the bank might not be too keen on fulfilling your loan request, as it had based its decision on both of your good credit histories when it approved the loan in the first place. 

But don’t worry, there’s a solution: refinancing.  

Refinancing your home loan is like giving your loan a makeover. You’ll get a brand-new loan with updated terms, and the money from that loan will wipe out your old debt completely. 

Once you have applied for refinancing, the bank will look at your credit records again and give the green light if they are confident that you can handle the mortgage on your own. 

And the best part? The other joint party’s name will automatically disappear from the loan agreement! 

It’s advisable to consult a real estate attorney before signing any contract to safeguard your rights, understand legal and financial obligations, and protect your interests.

The content of the article is partly excerpted from the video commentary by Joyce Yeoh, a real estate agent at IQI:

 

 

 

 

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In the thrill of purchasing a home, individuals often disregard potential drawbacks.

Nevertheless, it’s crucial to recognise that buying a home is a significant life event. Take the time to weigh your options carefully to prevent future regrets.

Before signing a contract, it is recommended that you consult with a professional real estate attorney to ensure that your rights and interests are fully protected and that you understand the legal and financial responsibilities that may be involved in the transaction.

The contents of this article were contributed by Joyce Yeoh.

Joyce is the Head of Team in IQI Realty’s Elite Team, with five years of experience in real estate. She has received numerous awards for her excellent performance. She is also a three-time recipient of the IQI Rolex Achiever Award.

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