Given our current landscape, co-signing for a mortgage is becoming more and more common. With the economy right now, unfortunately even with a good income and sufficient funds for a down payment, you may not qualify for a mortgage which suits your desired property and location. Thus, you may require a co-signer.
There are some key elements to keep in mind for both you and your co-signer:
- If you are unable to make your mortgage payment your co-signer will be expected to make the payments on your behalf. By signing the mortgage documents, the co-signer assumes full responsibility for the payments.
- Whether someone is the principal borrower, co-borrower, guarantor, or co-signor, if you’re on the mortgage, you’re 100% responsible for the debt of the mortgage and everything that goes along with that. A co-signer has all the same legal obligations as everyone else on the mortgage.
- If mortgage payments aren’t being made, there is a chance the lender could take legal action against the co-signer. That includes all available collection methods, such as obtaining a judgement in court or garnisheeing wages or bank accounts. They could even go after the co-signer’s property or assets to cover the losses.
- Considering refinancing or purchasing another property in the future? If you are co-signer on a mortgage, this will be factored into the calculations, and it could create challenges. Even if you aren’t making, payments as a co-signer, the payment must still be factored in.
- Once the initial mortgage term has been completed (typically a 5-year term), the co-signer will not automatically be removed from the mortgage. If the principal borrower can’t qualify to carry the mortgage on their own, the co-signer will be kept on the mortgage for the next term of the mortgage.
Consider seeking tax and legal advice before co-signing:
- There could also be implications with respect to your personal income taxes, such an accumulating an obligation to pay capital gains taxes down the road. This should be discussed this with your tax accountant.
- Co-signing may impact Land Transfer Tax Rebates for first-time homebuyers – when speaking with your real estate lawyer this is something to bring up.
- You are entrusting your credit history to another party – anything could happen.
Before co-signing for any debt, ensure you fully understand the potential implications and how it could affect you.
If you have further questions about your own mortgage situation, please reach out.