Is It Worth Getting a Flatmate to Help Pay My Mortgage?

This article explores whether inviting a flatmate into your home makes financial sense for mortgage holders.

Financial Arguments

A spare room represents significant untapped earning potential. Using an $800,000 mortgage at 4.25% over 30 years as an example, putting a $200/week flatmate contribution ($10,400 annually) toward extra mortgage payments could save approximately $90,000 in total interest and shorten the loan term by about 5 years.

Additional Cost Savings

Beyond mortgage acceleration, shared living reduces expenses through split utilities: power, water, internet, and even streaming services can be shared, instantly lowering your monthly bills.

Tax-Free Boarder Exemption

Here's good news many homeowners don't know about: the IRD provides a boarder exemption that allows you to earn up to approximately $215 per week tax-free from hosting up to two boarders in your home.

How the exemption works:

• •You can have up to 2 boarders in your home
• •Income up to the IRD's set weekly threshold (around $215/week per boarder) is tax-free
• •This threshold covers both rent and any meals/services you provide
• •Income above the threshold must be declared and is taxable
• •The exemption only applies to boarders in your own home (owner-occupied), not investment properties

Note: The exact threshold amount is updated periodically by the IRD-check the current amount on ird.govt.nz before relying on this exemption.

Flatmate vs Boarder: Know the Difference

Boarder: You provide accommodation plus services (meals, laundry, cleaning). The boarder exemption applies.

Flatmate/Tenant: They have exclusive use of their room and share common areas, but you don't provide meals or services. This is a tenancy arrangement with different rules.

Residential Tenancies Act Considerations

If your arrangement is a tenancy rather than a boarding situation, the Residential Tenancies Act 2018 (RTA) applies:

• •Written tenancy agreement required: Use the standard MBIE tenancy agreement form
• •Bond lodgement: Bonds must be lodged with Tenancy Services within 23 working days
• •Notice periods: You cannot simply ask a flatmate to leave immediately-proper notice periods apply (minimum 42 days for periodic tenancies in most cases)
• •Healthy Homes Standards: The room must meet minimum heating, insulation, ventilation, moisture, and draught standards
• •Rent increases: Limited to once every 12 months with 60 days' notice

Exemption: If you share facilities (kitchen, bathroom, living areas) with your flatmate and there are no more than 2 other flatmates, the RTA does not apply. This means more flexibility but also less protection for both parties. A written flatmate agreement is still strongly recommended.

Practical Considerations

Benefits include faster equity building and improved borrowing power. Disadvantages involve privacy loss, lifestyle conflicts, and potential wear on the property.

Implementation Guidance

Specific recommendations include:

• •Screen potential flatmates carefully (references, meeting in person)
• •Establish a written flatmate agreement covering rent, bills, notice period, and house rules
• •Set clear boundaries about shared spaces, guests, and quiet hours
• •Understand whether you're offering a boarding or tenancy arrangement
• •Check whether the boarder exemption applies to your situation

Long-Term Strategy

Even temporary flatmate arrangements early in a mortgage can produce substantial long-term financial gains, though this approach isn't suitable for everyone.