19 Jul How to Decide on the Manner of Holding for Your Property
Are you intending to purchase a property with your spouse, a family member or a friend? Before committing yourself and putting money into the house, you’ve got to think through carefully with your fellow co-owners and decide wisely on the manner of holding – joint tenancy or tenancy-in-common? This decision is of utmost importance because your choice today could make or break certain decisions that you need to make tomorrow. Read on to find out.
Under a joint tenancy, all the owners have an equal interest in the property – which also means that all of them have equal rights. No single owner can call the shots with regards to any issues on the subject of the property, including the sale of it. This is regardless of which owner is making the bigger financial contribution.
There is also a right of survivorship. Upon the demise of any owner, regardless of whether or not he has a will, his share of the property would automatically be transferred to the other co-owners.
For example, if Person A, Person B and Person C own a property that is under joint tenancy, in the unfortunate event of Person A’s demise, his share of the property will automatically be given to Persons B and C.
Under tenancy-in-common, each owner has a clear-cut share of the property, and he has full autonomy over it. This means that he is solely responsible for any decision-making surrounding his ‘percentage’ of the house. Should he decide to put his portion of the house up for sale, he does not need to go through the other owners.
There is no right of survivorship. Upon the demise of any owner, his share of the property would automatically be assigned according to his will. Otherwise, it would be transferred to the beneficiaries in accordance with the Intestate Succession Act.
For example, if Person A (50%), Person B (30%) and Person C (20%) own a property that is under tenancy-in-common, in the unfortunate event of Person A’s demise, his 50% share of the property will automatically be assigned according to his will, or according to the provisions of the Intestate Succession Act.
Which ownership option should you choose?
Both ownership options have their own pros and cons. Many a time, given that a joint tenancy is the default option, married couples opt for it without much consideration. However, some couples may find themselves stuck at a crossroads when they want to buy a second property later on. They may wish to decouple to save on the Additional Buyer’s Stamp Duty (ABSD) but under a joint tenancy, decoupling can only take place after a divorce. Conversely, it is much easier under tenancy-in-common. All one has to do is to sell his portion to the other owners and the decoupling is settled.
It is also important to note that certain requirements are necessary for a change of manner of holding. If you want to change the ownership from a joint tenancy to tenancy-in-common, the owners of the property need to have a 50-50 share under the new ownership. On the other hand, switching from tenancy-in-common to a joint tenancy is possible only if the owners of the property currently have an equal interest in it.
Does the manner of holding affect your mortgage loan approval?
No, it does not. With regard to your mortgage loan, only TDSR and MSR are essential in determining your loan eligibility.
The Total Debt Servicing Ratio (TDSR) restricts the amount an individual can borrow to finance his property loan to 60% of his gross monthly income, taking into account the individual’s other financial commitments. These commitments include but are not limited to personal loans, car loans, study loans, equity loans and credit card bills. TDSR is applicable to all properties.
The Mortgage Servicing Ratio (MSR) limits the amount an individual can spend on his mortgage repayments to 30% of his gross monthly income. MSR is only applicable to HDB flats and Executive Condominiums (ECs) directly purchased from the developer.
Read our article “What is TDSR? MSR?” to glean further information on mortgage loan eligibility.
It is essential to plan ahead and determine early on, way before purchasing the house, the ownership type that suits you best. If you are still unable to set your heart on the manner of holding, our friendly mortgage specialists can offer you valuable advice. Contact us today.