# Co-signing a mortgage



## Russ

I am considering co-signing a mortgage for one of my children. I will be on title, but I will not contribute any money and I will not reside in the house. I own my own home which is my principle residence.

At some point in the future my child may sell the property while I am still on title. I believe I would not be subject to capital gains because I am not the beneficial owner - none of the capital gains would actually belong to me. Since capital gains are self-reported I doubt the issue would ever surface at CRA, but I am wondering if I need to protect myself in any way at this time. Do I need to take any action, such as swearing an affidavit now to protect myself in the future?

By the way, I am aware of the risks associated with co-signing. My question at this time has more to do with potential capital gains on a property that is not my principle residence.


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## marina628

Russ said:


> I am considering co-signing a mortgage for one of my children. I will be on title, but I will not contribute any money and I will not reside in the house. I own my own home which is my principle residence.
> 
> At some point in the future my child may sell the property while I am still on title. I believe I would not be subject to capital gains because I am not the beneficial owner - none of the capital gains would actually belong to me. Since capital gains are self-reported I doubt the issue would ever surface at CRA, but I am wondering if I need to protect myself in any way at this time. Do I need to take any action, such as swearing an affidavit now to protect myself in the future?
> 
> By the way, I am aware of the risks associated with co-signing. My question at this time has more to do with potential capital gains on a property that is not my principle residence.


You should get the lawyer to draw something up for both of you that basically you are on title for lending purposes only.Of course you can add whatever terms that you want for example if you have to step in to make financial contributions in the future.If they ever want to remove your name there will be a cost for land transfer .Are you putting any funds into the purchase?If you are not then if called to answer you probably would be believed that it is for lending purposes but if you are partially financing this home plus on all documents they could challenge you on the capital gains.


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## birdman

There is a difference between a co-signer and a guarantor and often the terms are used interchangeably. If you are a guarantor you do not need to be on title-you simply provide your personal guarantee for the mortgage. Often this is referred to as a co signer and you are not on the title as an owner. I believe that if you are on title and a co signer (which really doesn't make sense to me as if you are on title you are one of the borrowers) you are liable for the debt. In the circumstances I am not certain why you would be required to be a registered owner unless this was something that you wanted in order to protect your investment (if any), or your child required your cash flow to prove debt service ability, or perhaps there is some other reason I may not know about. I can't answer your question on capital gains but it seems that from what you have said, why go on the title, just guarantee the loan if required. Sorry for not specifically answering your question but thought the above may shed some light on the transaction. Hope this makes some sense.


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## marina628

Most banks require all applicants to be on title even if one is acting as a co-signer.


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## birdman

I did a very brief google search on co-signer vs guarantor and as I suggested it seems a co signer is when additional income is needed to support the debt. If income is not an issue then a guarantor should be ok. 
Again, I only checked out a couple of sites but they both suggested this was the reason for a co-signer vs a guarantor. Unfortunately, many people, including lenders use them interchangeably. When I was in the business (a credit union) we regularly took guarantors that were not on title, as opposed to co-signers. I only did commercial lending when I was with a bank and of course we virtually always had guarantors and sometimes supported the guarantee with a mtge. This doesn't solve the Capital gains issue but I just mention it in the chance there is some miscommunication somewhere or perhaps an untrained lender who does not understand the difference.


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## Russ

I would have preferred being a guarantor but the lender in this case required a co-signer due to the circumstances. Apparently it's not very difficult for a guarantor to wiggle out of the obligation. Co-signors are more secure for the lender. I believe in Ontario a co-signor on a mortgage must also be on title. 

A co-signer is usually no longer required on a subsequent mortgage renewal but as Marina said there are costs associated with the resulting change in title.


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## marina628

Russ said:


> I would have preferred being a guarantor but the lender in this case required a co-signer due to the circumstances. Apparently it's not very difficult for a guarantor to wiggle out of the obligation. Co-signors are more secure for the lender. I believe in Ontario a co-signor on a mortgage must also be on title.
> 
> A co-signer is usually no longer required on a subsequent mortgage renewal but as Marina said there are costs associated with the resulting change in title.


I live in Ontario and have been in this situation .I ended up having to buy the people out as I was tired of coming up with their shortage on the mortgage each month. So I had to pay the land transfer but the bank did not charge me anything to take them off the title and mortgage ,that could have been expensive .I paid them cash for their equity minus the $5000 or so they owed me in mortgage payments. I still have this property and in the end it has all worked out .


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## OhGreatGuru

This is going to sound harsh. But unless it is worth it to you to get them out of your own house, I don't recommend cosigning your children's mortgages. You are helping them buy something the banks think they can't afford. Let them learn to save; and reduce their housing expectations; until they can afford their mortgages unassisted. In the meantime rent.


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## marina628

I agree with you guru ,if they cannot afford it based on today's rates then what happens when rates go up ,if they have change in expenses etc.Have them try to make some extra money this year and delay it a bit ,they may be upset and feel entitled but in the end they will be happy they did things on their own.


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## marina628

One final piece of advice for Russ , ask the kids if you do have to pay capital gains are they prepared to pay that entire bill and agree to it in writing.If they are presented with that option they probably will change their minds about you co-signing.You cannot assume you may get away with something ,that is very poor planning on your part IMO.


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## Russ

Thanks for the replies and the warnings about co-signing.

Marina, I hope you don't think I'm trying to "get away with something". I have been an honest and responsible taxpayer for my entire life - and that's quite a long time. CRA recognizes the difference between a legal owner and a beneficial owner. I'm just not sure how to prove my position if I'm still on title when the property is sold and if there is a capital gain. 

See this for example...
http://business.financialpost.com/2013/01/19/understanding-the-tax-implications-of-co-signing-a-childs-mortgage/


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## marina628

Russ said:


> Thanks for the replies and the warnings about co-signing.
> 
> Marina, I hope you don't think I'm trying to "get away with something". I have been an honest and responsible taxpayer for my entire life - and that's quite a long time. CRA recognizes the difference between a legal owner and a beneficial owner. I'm just not sure how to prove my position if I'm still on title when the property is sold and if there is a capital gain.
> 
> See this for example...
> http://business.financialpost.com/2013/01/19/understanding-the-tax-implications-of-co-signing-a-childs-mortgage/


Russ 'get away with' probably not the right phase as we do understand on this forum you are trying to help your child buy a house and not to benefit financially from it. I would recommend that you not comingle your money with this transaction ,don't have the payments coming from a joint account.If you can keep arms length approach on this transaction that will help you .It would be difficult to explain if there is proof you are providing the down payment etc if ever reviewed. But I stand by my suggestion you need to discuss what happens if they sell for a profit and you have to pay capital gains. Don't assume this will never come up.


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## Russ

Just so you know, I am not providing any financial support by way of a gift, down payment, monthly payments, property taxes or any other way.


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## Cal

Why are you going to be on title? Why not co-sign the loan/mortgage and have title in the childs name? Wouldn't that avoid the potential future situation that you are worried about? I mean, yes, I know it wudl not be pretty if they didn't make their payments, but you don't seem worried about that, so I am assuming your child is financially responsible.


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## marina628

cal the lenders usually require all people on mortgage to be on the title.


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## birdman

How about something like placing a mtge on your house and you in turn lending the money to your son secured by a mtge on the property being purchased. Yes, you have interest income but also have interest expense to offset. More legal fees and perhaps some other stuff I have not thought about.


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## sprocket1200

do it!

it will teach both of you a lesson!!



Russ said:


> I am considering co-signing a mortgage for one of my children. I will be on title, but I will not contribute any money and I will not reside in the house. I own my own home which is my principle residence.
> 
> At some point in the future my child may sell the property while I am still on title. I believe I would not be subject to capital gains because I am not the beneficial owner - none of the capital gains would actually belong to me. Since capital gains are self-reported I doubt the issue would ever surface at CRA, but I am wondering if I need to protect myself in any way at this time. Do I need to take any action, such as swearing an affidavit now to protect myself in the future?
> 
> By the way, I am aware of the risks associated with co-signing. My question at this time has more to do with potential capital gains on a property that is not my principle residence.


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## youngdad3

if the lender requires you to be on title maybe you could check with another lender who would agree to co-sign the mortgage only?

That's exactly what I did when I bought my first house at 21yrs old, I had been running a small business on my own for about 2 years so banks wouldn't let me sign alone (event though I had a 25k$ downpayment on a 145k$ house) so my dad accepted to co-sign the mortgage. The bank (desjardins at that time) wanted him on title but we made the point that he would have capital gains on the time of resale so they accepted to leave him out. Maybe the fact that we used the same branch that he had his own mortgage and assets helped us out.


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## w0nger

if the house is there primary residence, after a few years, why would they be subject to capital gains?


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## OhGreatGuru

I believe YoungDad3 means the father ( who would not be residing in the house) would be subject to capital gains. 
In actual fact, since he had no equity in the house, and would receive no proceeds of sale, he wouldn't have any capital gain. But fortunately the bank was too dumb to realize that.


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## MrMatt

Russ said:


> Just so you know, I am not providing any financial support by way of a gift, down payment, monthly payments, property taxes or any other way.


If you're co-signing, could you cover the mortgage by yourself?
I would gift a bit of a downpayment before I sign, it limits your liability.


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## Just a Guy

Technically, you can go down to land titles and remove yourself from the title at any time. If you wait a long time, it may have to prove you aren't entitled to the capital gains (or losses which are probably more likely in the future if interest rates rise). However, a week after the bank registers you would be fine...and the banks don't care because you're still on the mortgage.


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## dougbos

In the future if Russ wants to come off title the kids will have to be requalified, Will their financial situation have improved in 5 years to the point where they can support the mortgage by themselves? Once Russ is on the mortagge he may find it hard to get off. As others have said above, if the kids can't do this by themselves then this should be a red flag to you.


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## Just a Guy

A lot of times the banks will push for a co-signer reguardless. The more names responsible the better. If you push back, they may relent on co-signing, but it seems pretty standard for young buyers reguardless of their situation. 

Heck, I remember when I was younger, I had a house that I'd paid off. I went and bought a new one (it was a boom time so I didn't want to list until I had a new place) and the bank wanted me to get a co-signer. They tried to tell me my old house couldn't be considered because it didn't have a mortgage on it. To that bank, it had zero value. 

I just went to a different bank. Canadian banks don't like risk, at all. Call up a mortgage broker and tell them to find you a lender that doesn't require a co-signer. There are plenty of lenders out there, if they can't find one, maybe they shouldn't be buying a place.


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## jordan_paul

Just a Guy said:


> A lot of times the banks will push for a co-signer reguardless. The more names responsible the better. If you push back, they may relent on co-signing, but it seems pretty standard for young buyers reguardless of their situation.
> 
> Heck, I remember when I was younger, I had a house that I'd paid off. I went and bought a new one (it was a boom time so I didn't want to list until I had a new place) and the bank wanted me to get a co-signer. They tried to tell me my old house couldn't be considered because it didn't have a mortgage on it. To that bank, it had zero value.
> 
> I just went to a different bank. Canadian banks don't like risk, at all. Call up a mortgage broker and tell them to find you a lender that doesn't require a co-signer. There are plenty of lenders out there, if they can't find one, maybe they shouldn't be buying a place.


That seems strange. I'm 21 and I bought my house last month with no co-signer. TD holds the mortgage.


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