Mortgage Co-Borrower and Guarantor: Roles, Risks, and Alternatives

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Mortgage Co-Borrower and Guarantor: Understanding the Differences

When a buyer cannot qualify alone for the desired mortgage amount, adding a co-borrower or guarantor is a common solution. However, these two options carry very different legal, financial, and relational implications that all parties must understand before committing. In Quebec, the legal framework is defined by the Civil Code of Quebec (CCQ), and the AMF-certified mortgage broker is obligated to ensure that each party fully understands their responsibilities.

The Role of the Co-Borrower

The co-borrower is a full partner in the mortgage. Their name appears on the mortgage deed and typically on the property title. Their income, credit, and assets are used in the qualification calculation. In return, they assume joint and several liability for the entire debt. Under the CCQ, solidarity between co-borrowers means the lender can claim full repayment of the loan from any of the co-borrowers, regardless of the proportion of ownership held. The most common co-borrower is a spouse, but it can also be a parent, sibling, or friend.

The Role of the Guarantor (Surety)

The guarantor commits to assuming payment obligations if the primary borrower defaults, without necessarily being listed on the property title. In Quebec, suretyship is governed by articles 2333 to 2366 of the CCQ. Canadian lenders almost always require solidary suretyship (article 2352 CCQ), meaning the guarantor can be pursued directly by the lender without first having to demonstrate the primary borrower's insolvency. The guarantor must meet the same credit and income criteria as if they were the borrower themselves.

Financial Implications for the Co-Borrower and Guarantor

The full mortgage debt appears on the co-borrower's or guarantor's credit report, reducing their borrowing capacity for their own projects.
Any late payments by the primary borrower are recorded on the co-borrower's or guarantor's credit report.
In case of default, the lender can seize the property and pursue the co-borrower or guarantor for the residual balance after the sale.
The co-borrower must pay land transfer tax (welcome tax) proportionally to their share in Quebec.
Capital gains on a secondary residence (if the co-borrower does not live there) will be taxable upon sale.

Alternatives to Consider

Increase the down payment: A larger down payment reduces the loan amount and debt ratios, which may allow qualification without a co-borrower. Family gifts are accepted by most lenders, accompanied by a gift letter confirming no repayment is expected.
Reduce the target purchase price: Lowering the purchase budget to stay within OSFI's GDS (39%) and TDS (44%) ratio limits can eliminate the need for a co-borrower.
Explore B-lender programs: Some alternative lenders offer more generous debt ratios or stated income programs that can facilitate individual qualification, at a slightly higher rate.
Consolidate existing debts: Reducing or eliminating consumer debts before the mortgage application directly improves debt ratios and may allow qualification without outside help.

Frequently Asked Questions

What is the difference between a co-borrower and a mortgage guarantor?

The co-borrower is co-owner of the property and co-responsible for the loan from day one. They are listed on the property title and the mortgage deed. The guarantor does not hold property rights on the asset but commits to repaying if the primary borrower defaults. In Quebec, solidary suretyship allows the lender to claim payment directly from the guarantor without first going through the primary borrower.

Does being a co-borrower or guarantor affect my own credit?

Yes. In both cases, the mortgage loan appears on your credit report (Equifax and TransUnion). This increases your total debt ratio and may limit your ability to obtain your own mortgage financing or other loans. Any late payments by the primary borrower will also be recorded on your file.

Can a guarantor withdraw from their commitment?

It is very difficult to withdraw from a mortgage guarantee. Withdrawal generally requires the primary borrower to requalify alone with the lender, or for the loan to be refinanced without the guarantee. The lender has no obligation to accept the guarantor's withdrawal if it weakens the loan's security. Prior planning with an AMF broker is essential.

What are the alternatives to adding a co-borrower or guarantor?

Alternatives include: increasing the down payment to reduce the loan amount and debt ratios, choosing a lower purchase price, using a B-lender program with more flexible criteria, improving credit and reducing existing debts before applying, or exploring homeownership programs like the HBP (Home Buyers' Plan) to boost the down payment.

What happens if the co-borrower wants to sell their share?

Selling the co-borrower's share requires either the consent of the other co-owner and refinancing the mortgage in the remaining borrower's name (who must qualify alone), or selling the entire property. In case of disagreement, the legal recourse in Quebec involves a partition request under the CCQ. Legal and notary fees can be considerable.