As house prices continue to climb and government policies aimed at keeping Canadians from taking on too much debt make mortgage money tougher to come by, co-signing of mortgages has grow in popularity.
A co-signer may be necessary for several different reasons. When the primary applicant fails to qualify for a mortgage on their own merits, oftentimes due to the lack of job stability, job history, or insufficient income, a co-signer is needed to support the mortgage application.
Often the co-signer will be a parent or relative who is trying to help a child or young relative seeking to secure a mortgage.
Often the co-signer will be a parent or relative who is trying to help a child or young relative seeking to secure a mortgage.
The co-signer is NOT on title for the property. They are however on the mortgage agreement.
Even though this is usually a family affair, things do happen and the risks associated with being a co-signer or guarantor on a mortgage are very real and should be well understood beforehand.
No matter what the reason for co-signing a mortgage or who it’s for, the potential impact on the co-signers personal financial commitments, personal credit history and their ability to get additional credit of their own when needed can be influenced for years.
Remember that when you are asked to co-sign a loan you are being asked to take a risk a lender will not take.
By co-signing a loan you are guaranteeing the debt. If the primary borrower fails to repay the outstanding loan then you are responsible for the balance owing just as if it was yours. This could include penalties, late fees and collection costs resulting from the default.
It is also important to note that lenders have all of the same legal options available to them when trying to collect from a co-signer as they do when trying to collect from the primary mortgage holder.
So what else do co-signers have to know?
Co-signers need to be aware that creditors will see a co-signed loan as a personal liability against the co-signer as well, limiting the amount of personal credit available to them in the future.
Here’s an example…Let’s say you presently qualify for a $600,000 mortgage. If you were to co-sign for your son’s $300,000 mortgage you would now only personally qualify for an additional $300,000 mortgage yourself.
It’s also important to know that co-signing can also be a long term commitment. Some mistakenly believe that the co-signers commitment ends when the mortgage comes up for renewal. This is only true if the primary borrower is now able to support the mortgage on their own. Otherwise, the co-signer will have to stay on the mortgage, extending the length of time they are committed to the balance owing.
Once the mortgage is co-signed, the only two ways to separate the signers are to terminate the mortgage by remortgaging the home without the co-signer, or sell the home and payout the mortgage. .
If you do decide to co-sign a mortgage despite the inherent risks, you can take several steps to try and minimize your risk:
· Make sure you can carry the cost of the loan payments should you be required to do so.
· You can ask the lender to inform you personally if a loan payment is missed so that you can make arrangements for payment before it affects your credit score.
· Make sure you get copies of all relevant documents just in case a dispute arises.
· Get independent legal advice.
Ultimately, as a co-signer, you are in a position to help a family member or someone close to you purchase a home they otherwise would not be able to do on their own...a generous undertaking. Just make sure you know what you’re getting into before you sign on the dotted line.
“Helping you find a mortgage...and peace of mind”
Domenic Mirabelli
Morcan Financial Inc.
416.303.4480
domenic.mirabelli@migroup.ca
No comments:
Post a Comment