Yesterday I had a couple come in to my office who was referred to me by Mr.Smith (privacy reasons) my past client. The couple has co-signed a mortgage for their nephew who would not qualify for a mortgage based on his income and credit score. So out of love Mrs.Mr Campbell co-signed thinking we have a responsibilty towards the kid. So a year later this kid stopped making payments to the bank and the bank started power of sale process and ultimately the onus came on Mrs.Mr Campbell to pay the mortgage or they also go in to collections and there credit will be ruined. I thought I should share this with my readers as they could benefit from this example.

So here are all the reasons why you should be carefull of co-signing,

1. You’re responsible for the regular monthly payments of the mortgage

By co-signing, you agree to take over the mortgage if the primary borrower doesn’t pay.

2. You’re risking your credit rating

Your credit rating will tank if your friend or family  home is foreclosed .Repossession appears on your credit report for seven years, starting from the first missed payment. If the lender sends the account to collections – and they will – the collection will also show on your credit report for seven years.

3. You’re risking your borrowing power

Here’s how my scenario would have played out if I had agreed to co-sign:

At the time, I had a home and a good credit rating. I co-sign my nephews mortgage. Nine months later, he defaults on the payments and the power of sale proccess has started. A year later, if I need to renew my mortgage or buy a condo or investment . The lender sees a repossession and a collection on my credit report. At this point, I imagine the lender doubling over in laughter as he turns me down.

You’ll have a hard time qualifying for any mortgage or loan with a black mark that serious on your credit history. 

Not convinced? OK, if you’re going to co-sign anyway, at least heed this advice…

1. Put your name on the title

If you are responsible for the mortgage they why not become part owner of the property and you can ask your lawyer while closing to define the percentage of ownership in the land registry. Your name will be on the title.

2. Ask for a key

Now you are on the ownership then you should also have a key to it. Having a key will make it easier should you ever need to take possession. Solution could be also to rent the property ,so that the mothly mortgage payments are made.

3. Monitor the payments

If you’re willing to co-sign a mortgage, then you need to be willing to watch the mortgage. That means making sure the payments get paid on time every month: ask for proof. It’ll be a hassle, but you’ll protect your credit rating – and your money.

I know people are smart but sometimes out of love and affection we do silly things in life and then we pay for them forever.

Call Tom Sachdeva if you are planning to buy or sell real estate in Toronto at 647-299-4529