A guarantor or co-signer can help secure the mortgage and the home that goes with it, whether a family member needs assistance purchasing their first home or a couple wants to pool their resources for a stronger mortgage application.
These two third-party choices have definite and significant differences:
- A guarantor is added to the mortgage but not the title of the property. A guarantor does not become the owner of the property; rather, they are responsible for the mortgage payments (‘guaranteeing’ that they will be made on time).
- A co-signer is added to the mortgage as well as the home’s title. A co-signer takes on partial ownership of the property and is entirely responsible for the payments (and so takes on more risk than a guarantor).
What is a Guarantor?
A guarantor, who often doesn’t resides in the property, might improve a primary borrower’s eligibility with a lender (but not always, depending on lender requirements).
A guarantor won’t own the property and won’t have access to the equity or the house as a “asset” because their name will only appear on the mortgage and not the title. Their only responsibility is to ensure that the mortgage payments are made.
In contrast to a co-signer, the guarantor usually only becomes liable for default if the lender has used every other tool at their disposal to collect from the principal borrower.
The death of a guarantor: If the primary borrower defaults, payments may be demanded from the guarantor’s estate.
What is a Co-Signer?
A financially sound co-signer, like a guarantor, aids the principal applicant(s) in obtaining a mortgage if they lack the necessary income or credit standing on their own. Usually, a co-signer also lives in the house (but not always, depending on lender requirements).
A co-signer, as opposed to a guarantor, assumes greater risk because they also share in the mortgage liability and part ownership of the property. All mortgage paperwork have their name, which also needs to be listed on the property’s title. If the mortgage payments are late, they become immediately liable as a joint owner.
Regardless of whether a co-signer really contributes to the monthly payments (if they are a spouse, for example), their income and assets may be at danger if the principal borrower defaults because they are listed on the title.
if a co-signer is lost? The liability for the mortgage then passes to the remaining co-owners, who take on equal duty, and is typically formalized as a Joint Tenant agreement (unless otherwise specified in the original mortgage agreement). They might have to reapply for credit with the lender.
Exists a co-CMHC-insured signer’s property already? The co-signing of another CMHC-insured mortgage is not permitted. (Mortgage default insurance is necessary when less than 20% of the purchase price is put toward the down payment.) Co-signing might be permitted by Sagen and Canada Guaranty, two other Canadian insurer choices.
Can you choose a guarantor role to reduce financial exposure?
High-earning professions or individuals who are more likely to be involved in litigation (such as doctors or lawyers) might look into taking on a guarantor position to shield their home’s worth from potential lawsuits.
A guarantor may not be accepted by all lenders, or they may have specific conditions that vary from case to case. In order to find the greatest fit for you, it is best to talk to your knowledgeable mortgage broker in Surrey about your alternatives.
Can Guarantors And Co-Signers Exit The Agreement?
It is a serious legal financial commitment to sign on as a guarantor or co-signer for a mortgage loan. But that doesn’t necessarily imply that it will last forever.
Need to exit, and the financial status of the main applicant has improved? The initial borrower may have improved their income or credit status over time. The principal applicant(s) and signing parties can then ask the lender to reassess the application and drop the co-signer/guarantor from the loan at that point (fees may apply).
However, the lender can potentially impose penalties if you make this adjustment before the conclusion of your current term (for breaking the contract early).
Need to leave but the main applicant(s) cannot meet the requirements on their own? If the principal borrower is still unable to secure alternative financing on their own, a knowledgeable Freedom Capital broker may be able to assist. The guarantor or co-signer might not be able to withdraw from the agreement in the absence of a workable lending choice.
Get it right the first time with Freedom Capital
The guidelines and specifications for using a guarantor or co-signer to obtain mortgage approval can vary depending on the lender. Additionally, depending on the situation, approvals could need to be addressed on an individual basis, particularly if the “helper” isn’t a family member or won’t be living in the house.
Contact us! We make things simple, regardless of how difficult you think your mortgage demands are. In order to help you move from pre-approval to house ownership, our helpful, highly qualified brokers can access the product and lender, including relying on guarantor and co-signer choices.
Additionally, obtaining your best term through our volume discount can help everyone save hundreds of dollars and provide lower initial mortgage payments.