What to consider when co-signing a mortgage

By Farhana S. Nurani, Barrister & Solicitor, Associate

It is not unusual for a family member to co-sign or guarantee a mortgage. However, there is a difference between co-signing a mortgage and guaranteeing one. For this topic, we will be focusing on co-signing a mortgage loan. Typically, where a parent has co-signed a mortgage for a child, it is not the intention of the parent to move into the property or be responsible for the property, payment of the mortgage or to benefit from the equity when the property is sold. However, whether the co-signer is a family member or a non-family member, a co-signer is an equal partner with the other borrower(s) on the mortgage. A co-signer signs mortgage documents, is registered on title and is responsible for the payments on the mortgage. However, there is often an understanding that the co-signer will not be making the payments. Before agreeing to a co-sign a mortgage or have someone co-sign a mortgage for you, here are a few things to consider:

1. If the mortgage payments are not made by the borrower(s), a co-signer may be required to pay the mortgage to avoid default.
2. If the property is foreclosed on and sold for less then the balance owing on the mortgage plus other fees, the co-signer may be responsible for repayment of the difference owing.
3. Is there an agreement between the borrowers as to when the co-signer will be released from the mortgage?
4. Is the co-signer willing and able to remain on the mortgage for several years or longer?
5. Is there estate planning such as a Power of Attorney or Will in place for the borrowers and co-signer to deal with each party’s legal interest in the property and the mortgage obligation in the event that a co-signer or one of the borrowers becomes incapacitated or dies?
6. Has consideration been given to mortgage insurance or other insurance options?
7. Possible tax implications or disclosure requirements for the co-signer if the property is sold before the co-signer is removed from the mortgage.

Further questions regarding the above can be directed to your Mortgage advisor or lawyer.

Farhana S. Nurani | Barrister & Solicitor, Associate
Sharek Logan & van Leenen LLP
780 917 6935
fnurani@sharekco.com
yeglaw.ca