When two or more people are named on a mortgage, it is known as a joint mortgage. Although joint borrowers are commonly married couples, there are no relationship requirements for borrowers. The lender takes each applicant's income, credit and debt into consideration to determine their ability to pay the mortgage. Joint borrowers have equal rights and responsibilities in the mortgage agreement.
Liability With a Joint Mortgage
The mortgage assigns payment responsibility. Both borrowers are equally liable for making the monthly mortgage payment. In the event of foreclosure, both parties will suffer the same credit consequences and collection activity. If one borrower has no source of income and does not intend to pay the mortgage, he can still face the same damaging effects of a foreclosure as the borrower with income. If one borrower passes away, the surviving borrower remains on the mortgage as a sole borrower.
Ownership Rights to the Property
A joint borrower listed on the mortgage does not necessarily have ownership rights to the property. Only borrowers specifically named on the deed possess legal ownership. For both borrowers to own the home, the property must be held as joint tenants with rights of survivorship or as tenants in common. If the property is held as tenants in common, each borrower owns a separate share of the home. Upon death, the share transfers to the designated beneficiary named by the borrower. In community property states, a home may be considered marital property even if the spouse is not named on the deed.
Mortgage Interest Deduction
Homeowners are entitled to deduct the mortgage interest paid during the year. The lender typically issues a 1098 Mortgage Interest Statement to the first borrower listed on the loan. If a borrower does not receive the statement, it does not mean she is not entitled to the credit. When it comes to the deduction, the IRS does not specify how joint borrowers must divide the interest they claim. It does not have to be divided equally. To qualify for the deduction, you must be liable for the debt and you must have made the payments. If only one borrower paid the mortgage, she is the borrower legally eligible to claim the deduction. For married couples, there is no need to divide the interest because they must file a joint return to qualify for the deduction.
Removing a Borrower
A borrower cannot simply take his name off the mortgage, even with consent from the other borrower. Generally, the only way to remove a joint borrower from a mortgage is to pay off the current mortgage, either by selling the property or refinancing. The borrower who wants to remain on the loan must apply to refinance without the other borrower's name or information. If the borrower cannot qualify on his own, the bank will not approve the refinance. The borrower who wants to remain on the loan could apply with another joint borrower or even a co-signer.
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