Have you recently thought about or been asked to co-sign for someone on a mortgage application? It’s not uncommon in spiked markets like Vancouver and Toronto for parents to offer to help their children get into the market by acting as a co-signor, guarantor or covenanter – but do you really know what this means?
“It means I will have to step up and pay the mortgage if they can’t!” Yes. But that’s not all! Most people don’t realize that the lender will not call you if a payment has been missed- you’ll be liable, and your credit will be hit. Missed mortgage payments on a credit report are a dead stop for MOST mainstream mortgage lenders. This means that if your co-applicant misses a payment and you aren’t aware of this, your credit will be damaged before you even get a chance to step up and make that payment! Even though you may not be making payments on this mortgage, you will be 100% liable.
“It means I’m liable for this mortgage, too!” Yes, also correct – but do you know what it really means to be “liable” for something? In this case of co-signing for a mortgage, it means that any borrowing you do in future will be subject to you carrying this mortgage as well. So if you are a co-signor and you then try to apply for your own mortgage, you’ll need to be able to carry both mortgages against your income. This is a VERY important piece that most people aren’t aware of. If you’re thinking of co-signing, look ahead and ask yourself what your future holds. Will you be buying/selling real estate in the near future? Does your income allow you to carry ALL liabilities, including this new mortgage, too? (Hint: a broker can help you figure this out!)
Another piece about being liable is that if the mortgage payments aren’t being made (and you’re only made aware once it’s too late), the lender can and will take legal action against YOU! It can go as far as court judgements, garnisheeing wages or bank accounts, foreclosure on other assets and properties! It’s rare that it comes to this, but knowing the risks are important.
“It’s just to get him/her started” Maybe – but, you’ll need to actively pursue removing yourself from this mortgage in future. You don’t automatically come off the mortgage at renewal. The other borrower will have to qualify on his/her own at that time. Be sure to set some terms around how long you’re going to provide assistance as a co-signor.
There are many cases where adding a co-signor is the best-case for a family trying to get into the market for the first time, or for someone who is rebuilding their credit – if you have other questions about this, or you’d like to explore your options as a borrower OR co-signor, be sure to give me a call!
Rebecca Casey
Xeva Mortgage Professional
604.833.8938
