Transcript of Video Blog:
Hi, everybody. It’s Rowan Smith from the Mortgage Centre. Today I want to talk about co signers and guarantors, and what the risks are, and what you face as a co signer or as a guarantor, and really what all this stuff means. Now usually somebody is not required to get a co signer or guarantor unless they cannot qualify for a mortgage or a car or whatever it is on their own. Now a co signer or guarantor are two different terms, but generally in the industry they’re used interchangeably.
So when someone says a co signor or guarantor, what they typically mean is one person’s name is on title who’s buying the home and another person is going not on title but on the mortgage. It’s not possible to be on title but not on the mortgage. That isn’t allowed. The mortgage lender will say whoever is on title has to be on the mortgage. But not everybody on the mortgage has to be on title.
That’s important. If one family member’s a first time home buyer and they want to preserve their first time home buyer rights, this is where we use it, or when one person is a parent and they’re just helping their child buy a home.
So in these circumstances, what are the risks of a co signer/guarantor? Well, you end up having to get independent legal advice when you close on the mortgage as the co signer. So the co signer will go in with the mortgagor to purchase the property or to refinance or whatever they’re doing, and they’ll immediately have to go get something signed from another lawyer, a different lawyer at a different firm, that says they were given independent legal advice.
The reason is they become jointly and separately liable, meaning that not only are the co signers’ incomes at risk for them to be sued for garnishments, but any other assets they have can be chased down by the lender.
Now in practice, this doesn’t really happen. It’s very rare that a lender has to go to that extent to chase a co signer down, typically because co signers are co signers because they add strength to a deal. They should have the cash resources to bail out the person they’re co signing for in the first place. That’s why the bank got them there.
So why does somebody need a co signer? Oftentimes, it’s lack of job stability, lack of job history, a new job. Typically, it’s income. It can be because they have poor credit, or maybe their credit situation is just dicey because of a divorce or a lost job or illness or what have you, and they need a co signer.
Now in those circumstances, co signers, be aware that you are not just signing on that mortgage. Your risk is not limited to just that mortgage. It extends beyond that. Now if you need actual advice on how far the lenders can go, I advise you to speak to a lawyer.
But my advice in this case is be very careful who you’re co signing for. Typically, I only see it amongst family: mom and dads co signing for children, a brother co signing for another brother. The reason is friends don’t like to do it because it limits what they can do in the future.
If I qualify myself for, let’s say, a $500,000 mortgage, and my friend is buying a $200,000 condo and I co sign for him, my purchasing power is reduced by that $200,000. If I want to go buy a $500,000 home, I can’t. So before you go and co sign, speak with me, and I can let you know how much your co signing is going to reduce your purchasing power going forward.
You’re obligated to disclose that you’re a co signer on another mortgage, even if the bank isn’t aware of it, in most cases they will be, however, especially if you’re co signing on a loan with CMHC, Genworth, or Canada Guaranty.
So before you co sign, please speak to me or get legal advice. I can at least advise you on how the limitation of getting this new mortgage debt in your name as well is going to affect you going forward.
Maybe it’s a temporary thing, and we can get you off the co signing of the mortgage at the end of the term, maybe after one year, depending on the situation of the actual applicant.
For the Mortgage Centre, I’m Rowan Smith.