Cosigning a Mortgage - 5 Things you Need to Know

Cosigning a mortgage happens in one of two scenarios. Either you are the lender and need someone to cosign with you, or if you are cosigning with someone in order to help them secure a mortgage approval. Regardless of the situation, it is imperative that you enter this binding agreement with the understanding of the legal implications of cosigning a mortgage in Canada.

The mortgage landscape never remains in a solid state, and has seen many changes in the past several years, with a few new mortgage rules coming into effect only recently. Qualifying for a mortgage is not as easy as it was only five years ago. This has led to many more cases when cosigning is used as a means of securing the funds. Seeing how this becomes more and more frequent, we decided to publish our list of five “must knows” about rules and implications of cosigning a mortgage in Canada.

1. A cosigner is not the same as a Guarantor

Here are a few commonly used (and as commonly confused) mortgage terms:

• Coborrower. When two people apply for a mortgage together, each of them is a co-borrower. All borrowers are qualifying together and will have joined ownership of the property.
• Cosigner. A cosigner is brought into the agreement in order to add strength to an otherwise weak mortgage application.
• Guarantor. Will personally guarantee the repayment of the debt in the event that the primary borrower does not pay.

2. Cosigner - More Detail

When a lender applies for a certain mortgage amount and is not approved due to weak credit or insufficient income, they may request a cosigner. This is an additional borrower that is added to the mortgage application to strengthen the request. One or more cosigners may be added to an application (as is the case of two parents cosigning on a child’s mortgage application to help him secure the funds). A cosigner will take part of the debt and will also take part of the land and title.

3. What makes a Strong Cosigner

If the reason the cosigner is needed is that the primary lender’s credit is weak, you will need a cosigner with a strong credit history. If the reason is lack of provable income, then the cosigner will have to present a strong income with little debt attached.

4. Implications for the Cosigner.

A cosigner is responsible for the debt, including the property taxes and condo fees, in a situation when the owner is not capable to pay. Moreover, the lender is not obligated to notify the cosigner of any missed payments until the loan is significantly behind. This will likely affect your credit rating. The cosigner has to be aware of all the costs that come with the property and follow the payment progression.

5. Taking a cosigner off the mortgage

When you want to remove a cosigner from the mortgage, you cannot do so without the cosigner’s consent. If the intention was to have the cosigner on the mortgage for a limited amount of time, you may want to choose a lender that has policies that accommodate this need.

For instance, let’s say you got a great deal for a 5 year closed fixed term, and believe you will qualify without a cosigner after the first or second year, then you should choose a lender that will change the ownership of the home without breaking the mortgage term.

We hope this helps many avoid some serious pitfalls and work out an agreement that benefits all involved. Call or email us with any more questions on the topic of mortgages in Canada. Best Mortgage Montreal is here for you.