{"id":10965,"date":"2017-03-24T02:00:02","date_gmt":"2017-03-24T06:00:02","guid":{"rendered":"http:\/\/www.zoocasa.com\/blog\/?p=10965"},"modified":"2017-03-24T11:35:11","modified_gmt":"2017-03-24T15:35:11","slug":"should-you-co-sign-your-mortgage","status":"publish","type":"post","link":"https:\/\/www.zoocasa.com\/blog\/should-you-co-sign-your-mortgage\/","title":{"rendered":"Should You Co-Sign Your Mortgage?"},"content":{"rendered":"

Recent data released by Statistics Canada does not paint a pretty picture regarding this country\u2019s personal debt levels. The federal agency reported that in the final quarter of 2016, the average Canadian\u2019s debt-to-income ratio was 167.3 \u2013 a new record.<\/p>\n

Total household debt exceeded $2 trillion, with 65% of that amount locked up in mortgage loans. With the price of property in cities like Toronto<\/a> skyrocketing, it has creating a worrying situation for policymakers.<\/p>\n

A Helping Hand Needed for Housing<\/h2>\n

One consequence of such mammoth levels of debt is that more and more young people are turning towards their parents for assistance. The bank of mom and dad has never been busier, as Canadians entering their golden years are being asked to offer financial assistance to their offspring.<\/p>\n

Mark Halpern of\u00a0WEALTHinsurance.com\u00a0is a financial advisor based in Markham, Ontario and trust and estate planning is a major part of his practise. With many baby boomer clients, this phenomenon of parents helping their children to gain a foothold on the property ladder is something he sees often.<\/p>\n

\u201cThis is the first generation that the children are not expected to do as well as the parents,\u201d he states. \u201cWhen our parents were buying houses it cost two to three years of their salary. Now you are talking about 10 to 14 years. It means parents are going to be helping out way more going forward.\u201d<\/p>\n

The Gift of Good Credit<\/h2>\n

Helping out in this case may come in a number of different forms. For those parents with considerable personal wealth and a nice retirement nest egg, buying a home for their kids could be an attractive option from a tax perspective.<\/p>\n

\u201cIt may mean giving a gift to their kids; if you gift cash to a child there\u2019s no tax on that,\u201d says Halpern. \u201cAlternatively, the parents might buy a house, the kid lives in the house, but the parents still own it as an investment property.\u201d<\/p>\n

A third option, which would be more viable for most people, is when the parents decide to co-sign on a mortgage<\/a> with their child. Not surprisingly, given the size of the purchase, there is a lot of paperwork involved and plenty to consider. That\u2019s especially the case if the property is sold later on down the line.<\/p>\n

\u201cIf the parents co-sign on a house then it is considered a non-registered investment for them,\u201d he says. \u201cIf the property then goes up in value, they will be subject to capital gains tax if the property is sold.\u201d<\/p>\n

What to Consider When Co-Signing Your Mortgage<\/h2>\n

Another factor to take into consideration is if a marriage occurs, which especially complicates matters if it ends prematurely. This certainly isn\u2019t beyond the realms of possibility with a divorce rate in Canada of 48%.<\/p>\n

\u201cIf it is a case of the parents and their son owning the home, but it is the matrimonial home, their son\u2019s wife would be entitled to half his share in the event of divorce. It\u2019s something parents need to consider if they plan on co-signing.\u201d<\/p>\n

Related Read: How to Sell Your Home During a Divorce<\/a><\/strong><\/p>\n

Likewise if the child you are co-signing with has personal issues you are unaware of -gambling addiction or drug\/alcohol dependence for instance.<\/p>\n

\u201cIf you give the house entirely to your kid, and they have some financial issues with creditors, or litigation issues, the house could be attachable by those creditors,\u201d says Halpern.<\/p>\n

Due Diligence Required<\/h2>\n

The way to protect yourself from such problems arising is through proper paperwork and counsel from a professional. That goes for both sides of a co-signing agreement.<\/p>\n

\u201cThis all needs to be documented properly,\u201d says Halpern. \u201cPeople need to get legal advice on how to set up a contract between parent and kid. That would deal with what happens on death, disability, divorce or divesture. You need to know who has first rights on a house.\u201d<\/p>\n

One eventuality that you can be sure of, apart from taxes, is death. This is something that needs to be accounted for to protect both parties should one side pass away.<\/p>\n

\u201cThere needs to be proper estate planning,\u201d he says. \u201cIf the parents die with taxes due, then the house will be considered an asset. For the child, they need to ensure they have a proper will and a power of attorney.\u201d<\/p>\n

Should one party to the agreement die, it is at the lender\u2019s discretion if the other side continues to pay the mortgage, or if they have to re-qualify. If the home is owned in a \u2018joint tenancy\u2019 agreement, the deceased party\u2019s interest simply switches to the other owner.<\/p>\n

Things are more complicated, however, if ownership of the home is under a \u2018tenancy in common\u2019 agreement. This would mean the property would form part of the deceased party\u2019s estate and be distributed according to the terms of the will. This could ultimately lead to the home having to be sold, if the original co-signor can not buy out the estate\u2019s inherited share.<\/p>\n","protected":false},"excerpt":{"rendered":"

Recent data released by Statistics Canada does not paint a pretty picture regarding this country\u2019s personal debt levels. The federal agency reported that in the final quarter of 2016, the average Canadian\u2019s debt-to-income ratio was 167.3 \u2013 a new record. Total household debt exceeded $2 trillion, with 65% of that amount locked up in mortgage […]<\/p>\n","protected":false},"author":47,"featured_media":10966,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jnews-multi-image_gallery":[],"jnews_single_post":[],"jnews_primary_category":[],"footnotes":""},"categories":[76,468],"tags":[],"class_list":["post-10965","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-buying-a-home","category-mortgages-2"],"yoast_head":"\nShould You Co-Sign Your Mortgage? | Zoocasa Life<\/title>\n<meta name=\"description\" content=\"Is it a good idea to co-sign your mortgage? 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