(February 25, 2022)
Mortgage applications often reach that critical tipping point when the addition of a non-occupying applicant is required to push the application over the finish line for approval. The non-occupying applicant is often a parent or close family member and is referred to as either a Co-signer, or Guarantor. The difference between the two is as follows:
CO-SIGNER: the addition of a non-occupying applicant to a mortgage and land title registration.
GUARANTOR: the addition of a non-occupying applicant to a mortgage, without the requirement of registering on title. Only available with select lendersand with loan-to-value ratios that are less than 80%
As you are now aware, there are two distinct types of non-occupying mortgage applicants, Co-Signer and Guarantor. The only difference between the two essentially being the requirement to register on title or not. Another thing to be aware of is that all lenders allow for a Co-Signer on a mortgage application, but not all lenders allow for Guarantor applicants, or applicants that request it do not fulfill the eligibility criteria to become a Guarantor.
So what then? What if a Co-Signer does not meet the eligibility criteria to sign on the mortgage as a Guarantor? There is an alternative, but it comes with a compromise. Rather than being withheld from the land title as one would expect with a Guarantor status, the Co-Signer would continue to register on the land title, but rather than eliminating their stake in ownership, they would simply exercise their right to minimize it by registering as Tenants in Common.
Tenants in Common registration
When adding a non-occupying applicant to a mortgage, most lenders default with a land title registration known as ‘joint tenants’, but there is another type to be aware of as well – ‘tenants in common’. Tenants in common is becoming a very popular title registration across Canada, and for various reasons. Before we get in to the applications of why one would opt for a Tenants in Common registration, let’s first identify the difference between the two registrations:
JOINT TENANTS REGISTRATION: when all title holders are entitled to an even split in property rights and right of survivorship. In the event a tenant dies, their share of the property automatically transfers to the surviving tenant.
TENANTS IN COMMON REGISTRATION: allows title holders to allocate specific shares of ownership. Also, in the event a tenant in common dies, they are able to pass on their property share as per their will instructions (otherwise, they would be subject to the rules that apply to property owners who die without having a will)
The following are examples of applications for Tenants in Common registration :
- VANCOUVER & TORONTO: when one of the purchasers are Temporary Residents and have not yet received their Permanent Residency. For example, the applicants might be married and one of the spouses are still in the process of getting their Permanent Residence or Canadian citizenship. In Vancouver and Toronto (and various other regions in Canada where Foreign Buyer Tax is applicable), many opt for a Tenants in Common registration with a 1% share allocated to the temporary resident spouse, thereby significantly reducing their foreign buyer tax payable.
- in second marriage relationships where there are existing children from the previous marriage, Tenants in Common could provide clarity and certainty between the couple’s ratio of ownership. Furthermore, it allows them the ability to pass on their share of the property to designated beneficiaries as per their will.
- well-suited to couples that are not legally married as it provides an opportunity to formally determine scale of ownership and ability to pass on their share of ownership in the event of death
- also well suited to joint venture and co-ownership purchasers where ownership stakes and survivorship rights can be maintained independent of all title holders
**The information in this article is intended as general information and is not intended to replace or serve as a substitute for any advisory, tax, estate planning, business succession or any other consultation service. Do not solely act on the information in this article. Consult further with your legal representative and/or professional advisor concerning any of the content contained herein.
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