Both commitments can help secure a mortgage approval. But one takes on more risk than the other.
Whether a family member needs help getting into their first home or a couple wants to combine resources for a stronger mortgage application, a guarantor or co-signer can help secure the loan and the home that goes with it.
A guarantor supports a mortgage (including accountability for payments) without owning the home, while a co-signer owns part of the property and shares full responsibility for payments.
Here's what you need to know about each option — on paper and in real life.
A guarantor may make sense if ownership risk needs to stay limited. A co-signer may make sense if shared ownership is intentional.
Listed only on the mortgage, not on title
Listed on the mortgage and title
A guarantor for a mortgage application can strengthen a primary borrower's qualification with a lender, and typically resides in the home (but not always, depending on lender requirements).
Their name will only be on the mortgage loan and not the home's title, so a guarantor doesn't have property rights or access to the equity or the home as an 'asset.' Their role is solely to guarantee that mortgage payments are made.
Unlike a co-signer, a guarantor typically becomes liable for default only after the lender has exhausted all other means of collection against the primary borrower.
If a guarantor dies? The guarantor's estate may be held responsible for payments if the primary borrower defaults.
Like a guarantor, a financially strong co-signer also helps the primary applicant(s) qualify for a mortgage if they don't have the income or credit standing on their own. A co-signer also typically resides in the home (but not always, depending on lender requirements).
Important note: Not all mortgage insurers allow co-signers on insured mortgages, which can affect approval options.
But unlike a guarantor, a co-signer assumes greater risk by taking on part ownership of the home along with mortgage liability. Their name appears on all mortgage documents and must be registered on the home's title. As a part owner, they are immediately liable if the mortgage payments are in default.
Because a co-signer is on the title, whether or not they contribute to the monthly payments (for example, as a spouse), their income and assets can be at risk if the primary borrower defaults.
If a co-signer dies? Typically formed under a Joint Tenant agreement, the mortgage liability then transfers to the remaining co-owners, who assume equal responsibility (unless otherwise specified in the original mortgage agreement). They may need to re-qualify with the lender.
Does a co-signer already have a CMHC-insured property? CMHC doesn't allow co-signing for another CMHC-insured mortgage. (Mortgage default insurance is required when buying a home with less than a 20% down payment.) Two other insurer options available in Canada (Sagen and Canada Guaranty) may allow co-signing.
High-earning professionals or those at increased risk of litigation exposure (e.g. doctors or lawyers) may seek a guarantor role to protect their home's value from litigants.
But not all lenders allow a guarantor, and some may have case-by-case requirements. It's best to ask your True North Mortgage broker about your options, as they can access multiple lenders and products to find the best fit for your situation.
Acting as a guarantor or a co-signer for a mortgage loan is a legal financial commitment and shouldn't be taken lightly. But that doesn't necessarily mean it's permanent.
Need to exit, and the primary applicant's financial situation has improved? Over time, the primary borrower may have strengthened their income or credit standing. At that point, both the primary applicant(s) and the signing parties may request the lender to reconsider the application to remove the co-signer/guarantor from the loan (fees may apply).
If you're attempting this change before the end of your current term, however, there may also be penalties charged by the lender (for breaking the contract early).
Need to exit, but the primary applicant(s) aren't able to qualify on their own? If the primary borrower still isn't in a position to go it alone, an expert True North Mortgage broker may be able to help find an alternative lending arrangement. If a viable lending option isn't available, the guarantor or co-signer may not be able to exit the agreement.
Each lender may have different rules and requirements surrounding the use of a guarantor or co-signer to secure a mortgage approval, including our in-house lender, THINK Financial. Depending on the circumstances, approvals may need to be handled on a case-by-case basis, especially if the 'helper' isn't a family member or if they won't be residing in the home.
Talk to us! No matter how complicated you think your mortgage needs are — we make it easy. Our friendly, highly trained brokers can access the product and lender to help get you from pre-approval to home ownership, including leaning on guarantor and co-signer options.
Plus, getting your absolute best rate through our volume discount can help everyone save thousands and lower your mortgage payments from the start.
Need other mortgage-saving ideas? We've got those, too.
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Know before you go (house hunting, that is). Get pre-approved fast, hold your best rate.
