It can be tough for most first-time home buyers to get their mortgage approval easily. Have you ever heard the terms “guarantor vs co-signer mortgage in Canada?” No? Then you are at the right place. We have all the information that you need. Keep reading the content and learn more about these terms and what to do with them.
What Are Co-signers And Guarantors?
A co-signer and a guarantor both help you qualify for a mortgage. But their roles are different. Here’s how:
A Co-signer
A co-signer is the person who signs the mortgage with you. They share responsibility for the loan that you take. If you do not make payments, then the co-signer will be responsible for that. A co-signer is also a part-owner of the home.
A Guarantor
On the other hand, a guarantor for a mortgage in Canada is only a backup if you cannot pay. They will not own the house and will not have to make any payments unless you default on the mortgage.
Key Differences: Mortgage Co-signer vs Guarantor in Canada
The biggest difference is ownership between these two terms. These are the differences for you to decide:
| Features | Co-signer | Guarantor |
|---|---|---|
| Listed on Mortgage? | Yes | Yes |
| Listed on Property Title? | Yes | No |
| Responsible for Payments? | Yes | No (unless the borrower defaults) |
| Affects Credit Score? | Yes | Yes |
| Can Help Secure Loan Approval? | Yes | Yes |
| Ownership of Property? | Yes | No |
| Legal Responsibility for Loan? | Yes | Only if the borrower defaults |
| Risk Level | Higher: Must pay if the borrower fails. | Lower: Only responsible if the borrower defaults. |
| Best for Borrowers Who: | Need additional income to qualify. | Have a stable income but a low credit score. |
| Impact on Borrower’s Financial Future? | Shared ownership may affect future borrowing. | No ownership, but credit score can be affected. |
| Removal Process | Can be removed through refinancing or mortgage restructuring. | Can be removed if the lender allows it after a financial review. |
How to Remove a Co-signer or Guarantor?
Learning about how to remove the co-signer vs guarantor mortgage is also important. Here’s how you can remove them:
Refinance the Mortgage
This is the most common way to remove a co-signer or guarantor. You will need to apply for a new mortgage in your name only. And to get approved, you have to prove that you can handle the payments by yourself.
Build Your Credit Score
Lenders want to see that you can handle a mortgage alone. For that, you need to make regular payments, reduce debts, and maintain a good credit score.
Increase Your Income
If you need extra help because of your low income, then show the lenders that it’s not the same anymore. Show them that your financial situation has improved now.
Request Lender Approval
Some lenders will allow you to remove your co-signer or guarantor without a refinance. However, this will depend on your financial strength and the lender’s policies.
Conclusion
When you are buying a house, it’s very important to be prepared for everything. Knowing about guarantor vs co-signer mortgages in Canada will help you get more deals. Was all of this information helpful for you? If yes, then leave a comment and connect with us to get more information on mortgages.