Calgary Winter spring 2018

The Co-Signor,
The Guarantor and
the Indemnitor
Mortgage Smarts (the book), explains the differences between a co-signor, a guarantor, and indemnitor in case you are
not aware of these categories of support when it comes to applying for a mortgage.
Co-signor
If you have little or no credit history,
or if you do not have enough financial
strength, the lender may require you
to have a co-signer. The lender must
be satisfied that the co-signer has the
financial ability to pay off the debt
if you default, and usually requires
that the co-signor go on the title as
well as you. If your financial situation
improves, the lender may allow the
co-signor to be removed from title.
Les bought a pre-sale condominium
from a developer. His parents were
willing to help him by putting $5,000
towards the down payment and
co-signing the loan. They were included
with Les on the title as tenants in
common.
The parents were insistent that the
only way Les would get the $5,000 was
if they were also on title.
So, the sale completed and five years
went by. Les enjoyed his condo and
all seemed well. Then water became
a problem in the building and it fell
into the “leaky condo” category,
requiring full rehabilitation. The cost
per unit was $40,000. At the time, the
government provided interest free
loans to owners who earned below a
certain income. Luckily, Les qualified
for his loan. However, when he made
the loan application it was noticed
that his parents were also on title.
Since they had ample money, they
were forced to borrow $40,000 to pay
the assessment, so now Les had to pay
them back $40,000 plus interest.
His parents were less than gracious
about having to pay the assessment
fee up front and it caused problems
between them and Les. However, had
they considered the ramifications going
on title at the beginning, the
situation would have been averted
and the loan for Les would have been
interest-free.
Guarantor
If you cannot financially qualify for a
mortgage, you might have a family
member or friend who is willing to act
as a guarantor. A guarantor provides
additional security to the lender, but
does not go on the title like a co-signor.
This person would have to qualify
financially with the lender. If you
defaulted in your mortgage, the lender
would foreclose on the property. Any
financial losses the lender incurred
would be payable by the guarantor if
you were unable to pay the required
amount. The guarantor’s promise to
pay is called a guarantee and is a written
document, which may or may not
be attached to the mortgage.
Indemnitor
An indemnity operates much like a
guarantee in that the person providing
an indemnity guarantees payment of
the loan. The main difference is that
the lender does not have to go after
the borrower first before being able to
claim for its financial losses. The lender
can call upon the indemnitor at the
first sign of trouble. The current trend is
to choose this form of security rather
than a simple guarantee.”
Life experiences always teach us after
the fact if we’re not careful in considering
all the options and unexpected
possible scenarios that could occur. In
the case of Les and his parents, the RE-
ALTOR® made a number of suggestions
to find a solution for Les. In the end it
did not work out so well for the family.
Ask your mortgage broker all the questions
you need to be aware regarding
signing as a co-signor, guarantor, or
indemnitor. In the end, improbable
outcomes rest upon your actions to
support family members.
Excerpt written with permission from
the authors of “Mortgage Smarts” published
by and available from Friesen
Press. Awarded the 2017 Independent
Publisher Book Awards Silver Medal in
the “Finance, Investment & Economics”
category.
REAL HOME ADVICE 18
Calgary Winter Spring 2018.indd 18
2018-02-01 12:00:44 PM