Removing a Co-Borrower From Your Mortgage | Quebec Guide

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Removing a Co-Borrower: Why and When

During a separation or divorce, one of the most significant financial issues involves the joint mortgage. If one former spouse wishes to keep the property, the other must be removed from the mortgage. This process is also necessary when a non-spousal co-borrower (parent, friend) wants to be released from the obligation. In Quebec, the family patrimony framework (articles 414 to 426 of the Civil Code of Quebec) and the Divorce Act (R.S.C. 1985, c. 3) govern the division of assets between spouses, including the family residence.

The Requalification Process

A lender will only remove a co-borrower if the remaining borrower demonstrates the ability to carry the mortgage alone. This requires full requalification under the criteria set out in OSFI Guideline B-20. The remaining borrower must meet the gross debt service (GDS, maximum 39%) and total debt service (TDS, maximum 44%) ratios, calculated at the qualifying rate (the higher of the contract rate plus 2% or the floor rate of 5.25%).

Assess your financial capacity: Calculate your GDS and TDS ratios using only your personal income. Include the mortgage payment, property taxes, heating, and all your debts (credit cards, car loan, line of credit).
Contact your lender or broker: Inform your financial institution of your intention. The lender will advise whether a simple contract modification is possible or whether a full refinance is required.
Provide required documentation: Prepare your income proof (pay stubs, notice of assessment, T4s), an up-to-date credit report, and any relevant legal documents (divorce judgment, separation agreement, buyout agreement).
Obtain a property appraisal: The lender will generally require a recent certified appraisal to confirm the market value of the property and calculate the loan-to-value ratio.
Complete the notarial process: The notary will discharge the previous mortgage and register the new mortgage deed at the Quebec Land Registry. The former co-borrower will sign a release and, if applicable, a property transfer deed.

Expected Costs

Notary fees: between $1,000 and $2,500 for the discharge, new mortgage deed, and property transfer if applicable
Property appraisal: $300 to $500 for a certified appraisal by a member of the Ordre des évaluateurs agrees du Quebec (OEAQ)
Prepayment penalty: varies by rate type and contract, potentially reaching several thousand dollars
Lender administrative fees: some lenders charge $200 to $500 for processing
Transfer duties (welcome tax): applicable if a property transfer occurs between former spouses, with possible exemption for transfers between spouses under the Act respecting duties on transfers of immovables

Options if Requalification Fails

If the remaining borrower does not qualify alone, several avenues can be explored. Adding a new co-borrower or guarantor (parent, new spouse) can compensate for insufficient income. Refinancing with an alternative lender, including trust companies or private lenders, sometimes offers more flexible criteria but typically at a higher interest rate. Certain credit unions (Desjardins caisses) may also offer some flexibility. As a last resort, selling the property allows repayment of the mortgage and division of the net proceeds according to the separation agreement or court judgment.

Frequently Asked Questions

Can you simply remove a name from the mortgage without refinancing?

Generally, no. Most lenders require a full refinance or at minimum a formal requalification of the remaining borrower. A mortgage is a joint obligation: removing a co-borrower fundamentally changes the risk for the lender, who must ensure the remaining borrower can carry the obligation alone.

What ratios are required to requalify alone?

Under OSFI Guideline B-20, the gross debt service (GDS) ratio must not exceed 39% and the total debt service (TDS) ratio must not exceed 44%. These ratios are calculated using the qualifying rate, which is the higher of the contract rate plus 2% or the floor rate of 5.25%.

What fees should I expect when removing a co-borrower?

Typical fees include notary fees (between $1,000 and $2,500 for the discharge and registration of a new deed), property appraisal fees ($300 to $500), and potentially a prepayment penalty if the current term is broken. Some lenders may also charge administrative fees.

What happens if I cannot qualify on my own?

You can explore several options: add a new co-borrower or guarantor, negotiate a temporary arrangement with your lender, refinance with an alternative lender that has different criteria, or consider selling the property. A mortgage broker can help identify the best solution for your situation.

Does family patrimony affect removing a co-borrower?

Yes. In Quebec, the family residence is part of the family patrimony (articles 414 to 426 of the Civil Code of Quebec), regardless of who owns it. The division of the net equity in the residence must be settled before or at the same time as the co-borrower removal. A divorce judgment or separation agreement is often required by the lender.