Removing a co-signer from a mortgage can be difficult. But is it possible? Will it negatively affect your home loan? Find out here
Updated September 5, 2024
As far as mortgage lenders are concerned, co-signers on a mortgage add financial security. This is because having a co-signer means there are two people responsible for paying off the mortgage. Banks and other lenders also favour home loan applications where a co-signer is present since it mitigates the risk of defaulting by the primary borrower.
For this reason, it can be difficult to remove a co-signer. But is it possible? Are there options in removing a co-signer from a mortgage?
In this article, Canadian Mortgage Professional will highlight what a co-signer is in a mortgage and tips on how to remove a co-signer from your home loan. We will also provide details on a co-signer’s responsibility and give a comparison on co-signers versus co-borrowers. Got no idea how to remove yourself as a co-signer on a mortgage? Read on to find out.
To our regular readers who are mortgage professionals, this guide on removing a co-signer from a mortgage is one of our client education pieces. You can share this with any client who might be interested. Send this to clients who want to remove a co-signer from their home loans!
What is a co-signer on a mortgage?
A co-signer on a mortgage is a person who agrees to bear the financial responsibility for a home loan. When the primary borrower cannot pay off their share, the co-signer will be required to shoulder the payments for the mortgage. However, being a co-signer does not equate to having an ownership stake in the property. The co-signer's name will not be included on the property’s title.
Watch this clip to understand how co-signers can help you buy a house:
To find out more about co-signers and their responsibilities, it is best to talk to a mortgage professional. You can find the best brokers, lenders, and other mortgage experts on our Best in Mortgage page.
Why do lenders allow co-signers?
Co-signers are often needed when the primary borrower’s credit standing is not adequate to qualify for a home loan. If an aspiring home buyer wants to apply for a mortgage, they can ask someone who is more eligible to be their co-signer for better chances of approval.
Some banks and mortgage lenders do not accept co-signers when applying for a mortgage. In most cases, co-signers are allowed when their credit scores are high. The same applies once their financial background satisfies the lender’s requirements.
Learn about the right credit score to buy a house in Canada when you read this article.
How to remove a co-signer from a mortgage
First off, your request to remove a co-signer from a mortgage will need to be approved by the bank or mortgage lender. There is no set procedure for getting out of the arrangement. Still, there are a few approaches that you can take. Here are some tips on removing a co-signer from a mortgage:
- consolidate the debt
- refinance the mortgage
- sell the financed asset
- find another co-signer
Let us discuss each tip on removing a co-signer from a mortgage contract below:
1. Consolidate the debt
The primary borrower can combine all their outstanding debts into one payment with a new loan. This can provide them with better terms and rates. If you are a primary borrower, your co-signer's name will be removed from the debt after you consolidate your liabilities.
2. Refinance the mortgage
Another way to remove a co-signer from a mortgage is by refinancing. You can get the loan refinanced with your name alone. This means the primary borrower can apply for a new loan to cover the remaining amount on the current, co-signed loan. Do not include the co-signer on the new loan.
Want to know more about refinancing? Check out this video on everything you need to know about refinancing real estate in Canada:
3. Sell the financed asset
Home loans can be secured by assets such as another property or car. As the primary borrower, you have the option to sell these assets to cover the payments. In turn, your co-signer's liabilities will be extinguished. However, this will only work if the asset is worth at least as much as the remaining debt to repay the full balance.
4. Find another co-signer
You can remove your current co-signer from your mortgage when you find another co-signer as replacement. If the bank or mortgage lender agrees, you will be required to take out a new home loan with the new co-signer attached. In this case, the previous co-signer will be removed during the transition.
What is a co-signer’s responsibility?
Both borrowers listed as co-signers of a mortgage are responsible for the entire loan, not just half of it. In other words, you are responsible for one hundred percent of the home loan if the person who you have co-signed with cannot pay their share. This is regardless of the primary borrower’s financial reasons or any personal circumstances.
This is also the major reason why most banks and mortgage lenders are hesitant to remove a co-signer from a mortgage. Overall, it is important to know the responsibilities before you co-sign a mortgage.
Why removing a co-signer from a mortgage can be difficult
There might be situations when lenders can be so reluctant to remove a co-signer from a home loan. It might be impossible to remove it at all even in the event of a separation or a divorce. There are also some cases when there is an agreement that one partner has assumed responsibility for the debt. Still, some lenders can find ways to collect from both applicants if necessary.
Lenders view a mortgage with two co-signers as adding extra security. This is because there are two people responsible for the home loan. Lenders will have double the opportunity to collect on the balance of the debt, if required.
Are co-signers the same as co-borrowers on a mortgage?
A co-signer and co-borrower are similar in the sense that they both are liable for the mortgage. However, co-signers do not assume a financial stake in the property and are not named on the title.
On the contrary, a co-borrower shares the same rights as the other borrower. They will become co-owners of the property and are entitled to a share of the proceeds if the house is sold.
How to remove yourself as a co-signer on a mortgage
If you are a co-signer on a mortgage and want to rid yourself of that debt, you can:
- ask to be removed
- get a co-signer release
- improve borrowers’ credit rating
- refinance the mortgage
- have the primary borrower sell the asset and pay off the balance
Let's explore the five ways to remove yourself as a co-signer:
1. Ask to be removed
This is perhaps the simplest approach. You can contact the bank or mortgage lender and request that you be removed as a co-signer on the mortgage. Some lenders will allow co-signers to be removed without being too hesitant if the primary borrower:
- has a good financial standing
- has no other debt aside from the mortgage
- has a stable job with income that can cover the mortgage payments
2. Get a co-signer release
After the primary borrower makes a certain number of consecutive payments on time, some mortgage loans will release your obligation as co-signer. To see if you qualify for a co-signer release, it is important to examine your loan contract. You can also contact your lender to find out if this option is open to you.
3. Improve borrowers’ credit rating
One way the primary borrower can improve their own credit rating is to check their credit report for errors that may be impacting their scores. Another way is to pay off other debts. If the borrower has fewer debts, mortgage lenders will be more likely to remove you as the co-signer.
4. Refinance the mortgage
If the primary borrower refinances the loan in their name only, then you will be off the hook as co-signer. Not only that, but the borrower may actually get lower interest rates and more favourable loan terms.
5. Have the primary borrower sell the asset and pay off the balance
When the primary borrower sells the asset, you can remove yourself as a co-signer from the mortgage. This tends to be a last resort and should be done only when the primary borrower is unable to make their payments.
What if you are not on speaking terms with the co-signer?
It is not surprising when a co-signer is not on speaking terms with the primary borrower. This is prevalent in situations where married couples were co-signers to a mortgage but are separated or divorced.
For these situations, refinancing the mortgage might be the best choice. Not only does it remove the co-signer from the mortgage, but it creates a new home loan for the primary borrower.
Still, there can be cases when refinancing is not an option. For worst-case scenarios, especially for spouses undergoing divorce, you can consult with a lawyer. You can ask the court to intervene and force the sale of the property when push comes to shove.
Why should you remove a co-signer from a mortgage?
Being able to remove a co-signer from your home loan does not have a huge impact on the amount of debt that you owe. The mortgage rate of your loan will also not be affected. However, it has one important benefit: peace of mind. If you can remove yourself as a co-signer from a mortgage, your liabilities will be extinguished.
On the other hand, if you are the primary borrower and you successfully removed your co-signer, you are now one hundred percent responsible for your mortgage. It can give a sense of pride knowing that the property is backed by your name and financial standing alone. Finally, you must verify if getting a co-signer does not count as breaking your mortgage agreement. This is to avoid additional penalties.
Taking the time to review the terms of your loan and consulting with your lender ensures that you are making an informed decision. This also helps protect your financial interests moving forward.
Did you ever experience removing a co-signer from your mortgage? Do you have plans to do so? Let us know in the comments section below.
